October 2023 - Monthly Economic Outlook

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


Pessimists who last year predicted a recession in the United States have been wrong to date. Optimists who thought the post-Covid period would deliver abundant growth need to adjust their scenario amid the ongoing slowdown. The world economy is on a tightrope. Its outlook in the months ahead will primarily hinge on three factors: (1) China’s capacity to restore the lost confidence of its citizens; (2) the shift from a neutral fiscal policy to an expansionary fiscal policy in the eurozone; and lastly (3) the strength of US consumer spending. In the meantime, given the level of risk aversion and the equity market sell-off, the dollar is likely to remain king. 


The pair of the month

High: 1.0947  Low: 1.0488 Change: -2.91%

The euro is on a slow downward spiral. In recent weeks, the broad-based appreciation of the US dollar in the foreign-exchange markets explains a large part of the euro’s depreciation. We think it still has significant downside potential at least until the end of the year. The market has not fully priced in a possible recession in the eurozone and inflation stubbornly above the European Central Bank’s 2% target. This is a perfect cocktail for the EUR/USD pair to return to the zone around 1.0350-1.0400 before the end of the year. Some analysts even expect the pair to fall back below parity. This is a premature target, in our view.


High: 0.8722 Low: 0.8517 Change: +0.65%

The Bank of England took the foreign-exchange market by surprise in September by opting for a monetary policy pause. The last rate hike, of 25 basis points, dates back to August. We think the terminal rate has now been reached at 5.25%. A further hike is possible depending on the inflation trajectory, but this is neither our scenario nor that of the monetary market, which forecasts an interest rate of 5.37% in three months. In our view, regardless of the UK’s economic trajectory and monetary policy, the EUR/GBP pair should logically stay within its range of the last few months, with a cruising zone of around 0.85-0.86. This is one of the major pairs experiencing the weakest volatility. 


High: 1.2746 Low: 1.2110 Change: -3.21%

We are in a world where the dollar is king. Barring a sudden and unlikely reversal of the trajectory of the world economy, long positions in the US dollar will likely continue growing. The market is in risk aversion mode. This means that sterling is set to continue depreciating against the US currency. The prospect of the UK economy sinking into stagflation obviously does not help, since this encourages foreign investors to leave the UK, putting downward pressure on the currency.



High: 7.9703 Low: 7.6830 Change: -2.36%

The sharpest fluctuations in the foreign-exchange market have taken place in Asia. The Japanese yen’s real effective exchange rate is at a 50-point low and 22 basis points below the Chinese yuan’s real effective exchange rate. This is putting huge pressure on the People’s Bank of China to depreciate the yuan or accept greater domestic deflation. In our view, a depreciation of the yuan can be ruled out in the short term, since this runs the risk of accelerating capital flight from China. As a result, the country will probably have no choice other than to opt for deflation. In any case, the only decisions available are bad ones.


High: 0.9687  Low: 0.9520 Change: +1.28%

This was unexpected. A large majority of foreign-exchange traders expected the Swiss National Bank to raise its policy rate further in September to narrow the gap with the European Central Bank. But this did not transpire and monetary policy was kept on hold. This triggered an unwinding of long positions in the Swiss franc. At present, it is too soon to know if the EUR/CHF pair can return to parity. We doubt this in the short term given the economic challenges in the eurozone. The pair will probably stabilise at around 0.96-0.98 in the weeks ahead.


High: 1.4824 Low: 1.4174  Change: -3.38%

The Canadian dollar is benefiting from the surge in oil prices since the summer (+38% in three months). This is likely to continue. On Bloomberg’s estimates, the oil market will have a supply deficit of 3 million barrels per day in the fourth quarter. The oil price can therefore be expected to stabilise at around 100-105 dollars per barrel. This is good news for the Canadian dollar, which should benefit from capital inflows. In the longer term, we still have reservations about the Canadian economy. We think the Bank of Canada will cut its rates before the US Federal Reserve because of the economy’s great dependency on the real estate sector (around 40% of Canadian GDP). But this is a subject for next year.


High: 1.6884 Low: 1.6473 Change: +3.49%

There are no surprises to be expected this week from the Reserve Bank of Australia (RBA), which is likely to leave its monetary policy unchanged again. What is key is that core inflation continues to fall. Moreover, the rise in interest rates is starting to cause serious fragility in the real estate sector. A prolonged pause is therefore called for. But this does not mean the monetary tightening cycle has come to an end. The RBA has left the door open for another rate hike, if necessary, depending on economic data. From the perspective of the EUR/AUD pair, sellers still have the upper hand.




High: 159.82 Low: 156.59 Change: -0,73 %

If you took advantage of August to steer clear of the currency market, you missed nothing regarding the EUR/JPY pair. The monthly low point (151.37) was the same as last month. Japanese monetary policy is still unchanged. A large majority of economists forecasts that the Bank of Japan will leave its monetary policy unchanged at least until July 2024 (Reuters survey last week). Lastly, the central bank has not made any interventions in the currency market. The door is open to a steeper depreciation of the yen in the coming months.


High: 394.65 Low: 383.90 Change: +2.52%

As expected, the Hungarian central bank has simplified the tools at its disposal to conduct monetary policy and kept to its word by cutting its policy rate by 100 basis points in September. A new normalisation phase has now begun. But there are numerous uncertainties in view of the macroeconomic situation in Hungary (recession) and the global economic downturn. Even though interest rates are relatively attractive in Hungary compared with other countries in the region, we doubt the HUF can stage a rally in the short term given the risk aversion prevalent in the foreign-exchange market.


High: 375.88 Low: 345.82 Change: +5.45%

The US dollar continues to surge. Foreign-exchange traders are making a simple bet. In periods of high uncertainty about the economic trajectory and the outlook for interest rates, it is better to avoid risks and to opt for safe-haven assets – namely the US dollar. We expect the dollar to continue rallying against the HUF at least until the start of next year when the US Federal Reserve will potentially adjust its interest-rate policy. On the face of it, Hungarian monetary should not have a significant influence on the USD/HUF pair in the medium term.

Economic Calendar


06/10 USD US employment figures in September
12/10 USD US inflation in September
18/10 GBP UK inflation in September
18/10 EUR

Eurozone inflation in September