USD Bulls biding their time

Global currency markets have becalmed somewhat the last month. You can read in the April Consensus FX Forecast Report if and how that has impacted recent currency forecasts.
I give you a summary of the most important Consensus Opinions underlying these forecasts. One general remark is that it is to be expected that carry-trades will perform well in these restful circumstances.

Developed Markets:
A run of soft US economic data has given the majority of world currencies the opportunity to recoup some of their YTD losses vis-à-vis the USD. However, the USD is expected to regain a broad-based appreciating bias on the back of underlying economic strength. A start of the Fed tightening cycle in June looks unlikely now though.
The Euro will remain pressured as the effects of the ECB’s QE scheme play out.
Persistent Greek risk and a weak response from the SNB should mean that EUR/CHF breaks below parity again because of safe-haven flows.
The GBP is vulnerable to near-term downside as the likely deferral of monetary tightening combined with uncertainty over the May General Election outcome looms. Against EUR it may just balance EUR weakness.
The AUD and NZD will likely maintain a soft trading path.
Outlook for the JPY remains that it will maintain a broad weakening bias, interrupted by brief periods of risk aversion driven corrections.

Emerging Markets:
The Ruble has benefitted from a higher oil price, a pause in broad USD strength and an attractive carry but this recovery may have over extended.
The TRY is facing a slightly negative investor mood because of political interference in monetary policy.

Latam:
The MXN and BRL retain a defensive bias, although MXN should be best protected by a pro-active Banxico. BRL weakness is likely to extend further after recent consolidation.

Asia:
China is not targeting a weaker CNY despite economic slowdown. The CNY continues to face elevated volatility as the PBoC is clearly on an easing path. Yet there appears to be little change in official currency policy.
In general the Asian currency outlook remains susceptible to another round of USD strengthening in the months ahead.

Simon Knappstein, FX Prospect

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