November 2023 - Monthly Economic Outlook

Gain an overview of the latest developments on the currency market and anticipate fluctuation risks.

End of the road

We finally have an answer to the question that was all bugging us! Is this the end of interest-rate hikes? It seems to us this is the case for most major economies. In the eurozone, the terminal rate has certainly been attained. The situation is similar in the UK and Canada, among other countries. This is also likely to be the case in the US. Obviously, this raises a new question. When will interest rates fall? Our scenario: since the disinflation process is far from over, high interest rates are sure to be around for longer than the market expects. 

EUR/USD

High: 1.0679  Low: 1.0448 Change: -0.42%

Monetary policy and interest-rate differentials are no longer likely to be the most important markers for the pair. In contrast, perception that the eurozone is at high fiscal risk could contribute to a depreciation of the euro. Four of the principal EU economies are in a complex fiscal position, with the exception of Germany obviously. Italy is once again the key focus of attention, with a large stock of debt maturing shortly that will need refinancing in poor conditions, high public expenditure and a spiralling deficit. While we rule out a new debt crisis, mounting bond yields pose a serious problem for the euro.

EUR/GBP

High: 0.8742 Low: 0.8613 Change: -0.05%

This pair holds out few surprises. Even though the UK macroeconomy is weakening a little more rapidly than its Continental European counterpart, we do not think this will play a major role in determining the pair’s trajectory. Monetary policy is on stand-by on both sides of the Channel, but this is another factor that has little influence. The pair has fluctuated for months within a range of just over 200 pips between 0.85 and 0.87. We do not see what could change this situation at present. This range is likely to be maintained at least until the end of the year and possibly beyond then. 

GBP/USD

High: 1.2338 Low: 1.2052 Change: -0.36%

The trend will be downward as long as the pair stays below 1.2390. Bad news is piling up for the UK economy. The latest PMI flash indicators underline a growing risk of recession. Activity in the services sector has staged its biggest fall since January, while the decline in manufacturing activity is the most protracted since 2008-2009. In these conditions, the Bank of England will obviously not raise its interest rates on 2 November. The money market puts the probability of a rate hike at just 10% compared with 50% a few weeks ago. That settles it.

EUR/CNH

High: 7.9703 Low: 7.6830 Change: -2.36%

It is now widely accepted that China has actively managed its exchange rate. This explains why the USD/CNH pair has hovered around 7.3 for some time. China does not appear to have a clear exchange rate target for the EUR/CNH pair, but it appears content if the pair stabilises at around 7.70. This price zone will consequently need watching in the short term. We do not rule out a slightly bigger drop towards 7.50 at the start of next year depending on the respective performances of the Chinese and global economies.

EUR/CHF

High: 0.9695  Low: 0.9427 Change: -2.07%

The Swiss franc is the only currency that has benefited, albeit marginally, from mounting geopolitical risk following Hamas’ terrorist attacks on Israeli civilians. But this is certainly not the fact that best explains its underlying upward trend. The Swiss currency is perceived by many operators as a hedging tool to buy protection against a probable eurozone recession. This strategy makes sense in view of the macroeconomic environment. We expect the EUR/CHF pair to continue its downward trajectory towards around 0.9400 in the coming weeks. A drop below 0.9350 could accelerate its depreciation.

EUR/CAD

High: 1.4608 Low: 1.4174  Change: +2.00%

The EUR/CAD remains on an upward trajectory. The European Central Bank and the Bank of Canada are both in a monetary policy pause mode. As such, the interest-rate differential is unlikely to be a very important marker for this pair. The CAD did not benefit much from the surge in oil prices (prices have since fallen). The pair is in some sense in autopilot mode. This means that the upward trend will probably continue in the very short term

EUR/AUD

High: 1.6846 Low: 1.6321 Change: +1.07%

After the surprise inflation hike, pressure is growing on the Reserve Bank of Australia to raise its policy rate on 7 November. Almost all economists expect a hike of around 25 basis points. This may be the last. Will this help the Australian dollar? Probably not. We are entering a new market configuration where interest-rate differentials play a less preponderant role in currency fluctuations. We still have an upward positioning on the pair. The Australian dollar remains fundamentally handicapped by the absence of a strong recovery in China.

EUR/JPY

High: 159.82 Low: 156.59 Change: -0.73%

The configuration of this pair is extremely simple. As long as the Bank of Japan (BoJ) does not shift its monetary policy one iota towards a normalisation, there is no chance that the Japanese yen will resume a lasting appreciation. Since no monetary policy meeting is scheduled this month at the BoJ, we can state with confidence that the EUR/JPY’s upward trajectory will continue. There is one small obstacle to cross: the resistance threshold situated at 160.00. This is what has limited the increase in recent days. We are confident the pair can go above this level in the short term.

EUR/HUF

High: 394.65 Low: 380.79 Change: -2.05%

The recent appreciation of the HUF is due in large part to the prospect of a final agreement between Budapest and Brussels on the payment of European funds that were blocked temporarily because of concerns about the rule of law in Hungary. This is not the first time rumours of such an agreement have circulated in the market. This was also the case last April. An agreement is certainly within reach. But it is not in the bag. Relations between Hungary and the European Union are frosty. Last week, Hungarian Prime Minister Viktor Orban compared the EU to a “bad parody” of the Soviet Union. If an agreement is not reached soon, it is not unlikely that the HUF will lose ground against the euro. In any case, regardless of the eventual scenario, we doubt there are sufficient arguments in favour of the HUF to lift the pair above the psychological zone of 400. The Hungarian macroeconomy is too weak.  

USD/HUF

High: 375.88 Low: 356.42 Change: -1.62%

As we explained above, the HUF’s appreciation is partly related to hopes of a final agreement with Brussels on European funds. It is also likely that investors who were overexposed to the US dollar decided to rebalance their positions at a time when the dollar is losing its attractiveness (monetary policy in pause mode, concerns that the US dollar is entering a downward cycle, etc.). From a technical analysis perspective, the resistance level of 370.32 needs watching closely. In recent weeks, this has restrained any attempt by the USD/HUF pair to resume an upward trend. 

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