FX Quarterly: Proving Forecasts Wrong

July 12, 2023
  • Investor Services
In the second FX quarterly of the year, strategists examine how the major investment themes that held at the beginning of the year have been proven wrong.
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  • In the U.S., many had penciled in a recession that would lead the Fed to cut rates in H2. The March banking sector crisis increased bets of further cuts by year-end but the resilience in the U.S. economy has led the market to finally price out those cuts in favor of more tightening.   
  • While the eurozone avoided a worst-case scenario due to a warmer than expected winter, the outlook remains quite weak. European Central Bank tightening has not yet been fully felt even as the bank continues hiking into the fall.
  • Many expected broad-based dollar weakness for much of this year. The ebbs and flows in the dollar index have been largely dictated by gyrations in market pricing for Fed policy. Given underlying strength in the economy, we believe the dollar will eventually break out to the upside in H2.
  • Many were bullish on emerging markets and China’s reopening in December. Yet China has turned increasingly inward and export data in Asia and Europe remain weak six months after reopening.
FXQ1 2023: What WIll Steer Rates in 2023?
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FX Quarterly: What Will Steer Rates in 2023?

In 2023’s first FX quarterly, strategists examine the Fed’s pivot and China’s reopening. Here is a synopsis of what is included in this quarter’s outlook.
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