Morgan Stanley revised FX outlook: No universal USD story as in first 8 mths of 2017
From the bank's weekly 'Pulse' research note, revised currency projections. They expect the broad USD index to fall; with EURUSD higher but GBPUSD lower, EURGBP moving beyond parity & EURCHF "accelerating towards 1.20"
From the note, in brief:
- Real money investors may increase their EUR exposure ... pension funds and insurance companies (such as those in Switzerland and Japan) start to increase their net EUR currency exposure from historically low levels
- increasing FX-unhedged inflows into EMU equities recently
- MS warn: The Jackson Hole Symposium later this month could be an avenue for ECB President Draghi "leaning against EUR strength", but "it will be about winning time and not about a fundamental change in its current policy approach"
On GBP, likely to weaken in its own right:
- driven by weak economic performance (household sector has increased spending, primarily funded by unsecured lending, which is unsustainable. A consolidation of the household balance sheet, coupled with negative real wage growth, may reduce consumption, which has been propping up growth so far),
- low real yields
- and increasing political risks (rifts within the Conservative Party have become visible again, leaving the question on where the PM will position herself in respect of Brexit)
- MS look for yen weakness for now but "the set-up for a USDJPY rally has remained in place". The bank looks for yen strength in 2018