Markets have increasingly priced in a normalisation of the economic situation. The US remains characterised by economic outperformance only supported by the outlook for further fiscal easing with the recent announcement of Biden’s infrastructure package. Blood clot concerns with regards to both the AstraZeneca and the Johnson & Johnson vaccines have worsened the outlook for an already disappointing EU vaccine roll-out compared to peers. This poses a real threat to the EU economic recovery. In China, credit and money growth has slowed further supporting the picture of policy tightening. Overall, our narrative of a strong US economy relative to EU and Asia continues.

Cyclical features of the FX market restored

The Fed faces an increasing pressure to raise rates and taper bond purchases. That leaves an outlook of higher USD real rates, which by extension diminishes the topside risk to EUR/USD. The development of EUR/USD hinges on the course of action whether verbal or rate intervention from the Fed. Commodity currencies have enjoyed a recent bounce in commodity prices, incl. oil but with the outlook for a turn in global manufacturing PMIs and a stronger USD that in our view limit the topside. Also a turn in the industrial cycle and weak domestic inflation dynamics pose a headwind for SEK. UK virus concerns and a bounce in the EUR recently brought EUR/GBP to the highest level since early March.

Recovery of the oil market to continue in H2

OPEC+ will start normalising oil output from May. We expect OPEC+ to balance the normalisation of output with the ongoing recovery in demand. Drilling activity has only slowly started to increase in the US shale oil and has not led to higher production yet. The ongoing vaccine roll out, reopening of economies and growing inflationary pressure has brightened the outlook for oil prices. OPEC+ has started normalising its oil output, which will ease the upside potential for oil prices from the sound demand backdrop. We have revised our oil price forecasts higher.

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