Economists at DBS Bank expect the euro and the British pound to remain under pressure for the time being amid economic concerns. 

Staying defensive on EUR and GBP

“ECB President Christine Lagarde declined to say if inflation has peaked and acknowledged that rate hikes will be needed at several meetings to curb demand. However, the tightening is coming when Bloomberg consensus expects real GDP growth to flatten to 0% QoQ in 3Q22 (vs 0.7-0.8% growth in the previous two quarters) before turning negative in 4Q22 and 1Q23. Against this weak backdrop, we see no reason for EUR to push above parity.”

“Despite the U-turn on abolishing the 45% top income tax rate, Fitch downgraded UK’s ‘AA’ long-term foreign currency debt rating outlook to negative from stable. Attention is also turning to how the UK can attract foreign capital to fund a current account deficit that widened to 8.3% of GDP in 1Q22. As more questions arise over UK’s weakened fundamentals, it is probably best to remain defensive on the GBP.”

 

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