USD is expected to lose ground vs. other majors – UOB

The Greenback is seen losing its shine vs. its main rivals in the next months on the back of a persistent easing bias from the Federal Reserve, suggested Researchers at UOB Group in the Quarterly Global Outlook.

Key Quotes

“Whilst Asian FX is expected to weaken further against the USD, we now see a constructive scenario for a weaker USD against most of G-10 majors spurred by aggressive Fed easing. We now expect 25bp rate-cut at each of the remainder three FOMC meetings for 2019 bringing the Fed Funds Target Rate to a range of 1.25%- 1.50%. If that comes to pass, the interest rate advantage that the USD currently enjoys over its G-10 peers will close significantly and structural USD longs set during Fed hiking cycle from end- 2015 to end-2018 may start to get unwound”.

“With intensifying discussions of a global recession and the resulting portfolio reallocation towards preparing for one, we expect the JPY to stay strong and update our view towards further strength towards 103/USD by mid-2020. Overall, investors are urged to hedge their JPY liabilities as the twin tail risks of US-China trade conflict and Brexit remain unresolved and tilted to the downside”.

“… if the previous QE by the ECB from 2015-2018 was any guide, EUR/USD may even stabilize after bond purchases commence (“sell of rumor, buy on fact”). Coupled with a more aggressive easing profile by the Fed, we expect EUR/USD to gradually recover to 1.12 in 2Q20 and 1.14 in 3Q20”.

“Overall, we maintain the view that the GBP/USD would stay depressed at 1.20 in the immediate two quarters until the fog of Brexit is lifted. Combining our negative GBP and positive JPY view, we expect GBP/JPY to drop further to 126 in Q120, near to its 2016’s flash crash lows of 121.60”.