Global FX Monthly Outlook - 18 September 2023

EUR and GBP likely to benefit if the Fed signal the end of its tightening cycle

EUR (1.066) ▲

  • Despite a 25 bps rate hike by the ECB, the EUR depreciated to its weakest level against the USD in six months. This depreciation was primarily due to the dovish statement highlighting the end of the ECB's tightening cycle and President Lagarde's speech, in which she stated that "economic growth to remain subdued in the coming months". The EUR was also pressured by solid US activity data.
  • The EUR may strengthen against the USD and trade close to the 1.10 mark if the Fed permanently pauses its rate hiking cycle and highlights downside risks to economic growth in its September FOMC meeting. However, the subdued macroeconomic outlook in the euro area (as evidenced by the ECB’s downgrade of its 2024 GDP growth forecast to 1.0% YoY from 1.5%), combined with robust US consumer spending and persistent high inflation in the US, could constrain the potential of the EUR to appreciate further.