Economic Insights Newsletter

Q2 2023 Currency Outlook

Signs of housing market weakness, labor market layoffs in the tech sector, and consumers struggling with wages not keeping pace with inflation are troubling signs into the second quarter.

GBPUSD (Neutral/Bullish)

The British Pound may have more negatives than Europe for now as pressures of Brexit have weighed on trade performance on the continent. A drop in energy prices has certainly been welcoming to the economy along with some tax cuts initiated by the current prime minister. Technically, the proud pound seems like it could play catchup especially if USD weakness catches on versus other G10 currencies over the next few months. It appears that 1.2440 could be a triple top or an inflection point for 1.2700.

USDJPY (Bearish)

After a long run of U.S. yields driving the Yen lower, it seems we have seen the best levels on the long-end of the curve. Expectations of a moderate recession and the Bank of Japan (BoJ) pivot on rates have all weighed on the USD/JPY cross with further losses expected near term. The BoJ also kept the Yen strong by doing a number of interventions to support their currency. In December the BoJ seemed to be setting up for its new Minister of Finance Shunichi Suzuki by relaxing its yield curve control policy which signaled 10-year Japanese yields to rise to 0.5% vs 0.25%. With U.S. rate expectations winding down, we should see a better performance of the Yen in 2023.

David Grimaldi, TM Foreign Exchange Sales Consultant

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