ANZ: USD and GBP outlook for the coming week

ANZ Bank provides insights into the outlook for the US Dollar and Sterling in the week ahead, focusing on the impact of recent macroeconomic data and positioning trends.

Key points:

1. US Dollar Forecast:

   • Macroeconomic stability: Despite market reactions suggesting otherwise, ANZ believes the macroeconomic backdrop in the US is not that bad. The labour market is heading towards normalisation, not recession.
   • ISM Recruitment Services: The Institute for Supply Management’s service sector employment index in July hit a ten-month high of 51.1, indicating resilience in the labor market.
   • Weather impact on salaries: The July household survey showed that more workers were affected by the weather than usual. The weather-adjusted payrolls at the San Francisco Fed were 150,000, better than the reported 114,000.
   • GDP growth: The Atlanta Federal Reserve’s current GDP estimate has risen to nearly 3%, up from a low of about 1.5% earlier this year, suggesting that concerns about a slowing U.S. economy may be overblown.
   • CPI as a major risk event: ANZ is highlighting Wednesday’s CPI release as a key event, with current Bloomberg consensus forecasts for CPI to come in at around 3% y/y. While CPI is typically neutral to negative for the USD, in the current climate, a reading in line with expectations could support the USD recovery by confirming the potential for a soft landing.
   • Impact on Swiss Franc and Japanese Yen: ANZ expects that as US yields recover and expectations normalise, the Swiss franc and Japanese yen – currencies that have been boosted by safe-haven demand – are likely to lose much of their recent gains against the US dollar.

2. GBP Forecast:

   • Relaxation mode: Continued liquidation of long GBP positions is limiting the GBP/USD upside despite the recovery in risk sentiment.
   • Neutral position in the short term: ANZ has closed short GBP recommendations and is currently neutral on GBP in the near term. The bank expects the decline in long positions to end, which could lead to stabilization of GBP/USD.
   • Positive outlook for the longer term: Over the longer term, ANZ remains cautiously optimistic on sterling. The UK economy has shown resilience with gains in both services and manufacturing PMIs, and overall economic momentum has remained steady.
   • Gradual easing of Bank of England policy: The services CPI suggests the Bank of England’s monetary easing cycle will be gradual, with interest rates expected to be cut in Q4. ANZ expects limited short-term weakness in sterling and expects the currency to stabilise as the situation normalises.

conclusion:

ANZ sees a potential recovery in the USD if upcoming data, especially CPI, is in line with expectations, which could also limit recent gains in the CHF and JPY. As for the GBP, while there is some short-term uncertainty due to unwinding, ANZ maintains a neutral near-term view and sees the longer-term outlook as more positive, with the BoE’s gradual easing cycle providing support.

For banking business ideas, Check out eFX PlusFor a limited time, get a 7-day free trial, Basic for $79/month, and Premium for $109/month. Get it here.