Global 2022 Outlook - Still battling headwinds (Part 1)
The desk believes that the global economic recovery, while bolstered by policy support and vaccine distribution, remains uneven and presents both opportunities and risks for FX traders. Per the full note from Standard Chartered, the unevenness of recovery could lead to differentiated monetary policy responses across major economies, impacting currency valuations. Current positioning suggests a cautious approach as investors weigh these factors against potential inflationary pressures and central bank actions. As we look ahead, the upcoming economic data releases will be crucial in shaping market expectations.
What the desk is arguing
The desk posits that the global economic recovery is on a fragile path, influenced heavily by ongoing policy support and the pace of vaccine rollouts. Per the full note from Standard Chartered, this uneven recovery could create volatility in currency markets as different regions respond to economic conditions at varying rates.
Supporting this view, the note highlights that while some economies are rebounding strongly, others lag significantly, which could lead to divergent monetary policy trajectories. This is particularly relevant as central banks reassess their stances in light of inflationary pressures, with the potential for rate hikes in some jurisdictions while others maintain accommodative policies.
Where it sits in our coverage
Our consensus target for the EUR/USD is 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which sees a stronger euro as the recovery progresses, while it diverges from bofa, which anticipates a weaker euro against the dollar, reflecting a more cautious outlook on the recovery.
How other firms see it
Firms like jpmorgan and citi are aligned in their bullish outlook on the euro, suggesting that the recovery will support a stronger currency. Conversely, bofa holds a contrary view, expecting the euro to weaken due to persistent economic challenges in the Eurozone.
Key indicators to watch include the upcoming ECB meeting and U.S. inflation data, as these will likely influence the EUR/USD trajectory and reflect central bank policy adjustments.
What the calendar says
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Key takeaways
- 01The global economic recovery remains uneven, impacting currency valuations.
- 02Divergent monetary policies are expected as central banks respond to local conditions.
- 03Inflationary pressures could lead to rate hikes in some economies.
- 04Upcoming economic data releases will be critical for market positioning.
Market implications
Watch for the EUR/USD to test levels around 1.075 as economic data releases provide insights into recovery trajectories. Positioning signals may shift as central banks signal their policy intentions in response to inflation.
Hello, and welcome to this special podcast from Standard Chartered. I'm Manisha Tank. It's a new year, and we know that many clients and customers want to know what lies in store over the next 12 months.
Joining me to have a look at the outlook for 2022, Eric Robertson, Global Head of Research and Chief Strategist, and Edward Lee, Chief Economist, ASEAN and South Asia. Let's start with the subject that dominates dining table discussions everywhere, COVID, the disease and the restrictions around it are having an ongoing economic impact. Eric, cases in the United States have skyrocketed, and it's also been the same case in Europe as well.
So how are we going to see this phenomenon reflected in the numbers? Certainly in the early days of 2022, we are seeing a hit to economic growth and economic activity and a hit to consumer sentiment. There are some signs that Omicron will be less of a long term problem compared to some of the other COVID variations, but I do think it is still early days.
Over the more medium term, I think it's very consistent with our economic outlook for the year, which is of two steps forward and one step back. For tourism dependent economies, things like Omicron have forced a reevaluation of how quickly they can reopen their domestic economies to foreign travelers. But over the course of 2022, we do expect that the path of travel on net is going to be positive.
And as Omicron is dealt with, hopefully successfully, we are expecting a more positive economic outlook in 2022. Edward, across Asia, and let's begin with China, what are you expecting for this coming year? Starting with China, if we are talking about the growth headline, it's going to slow.
But we are talking about slowing of growth from 8% to 5%. And do not forget at 5%, we are pretty much running at potential growth for China. There's been a lot of focus in terms of growth concerns with the regulatory crackdowns, some energy shortage, some of the earlier monetary policy tightening.
At the moment, governments are clearly applying a more flexible approach. We have already seen them cut rates and probably they are going to be a bit looser on the fiscal side, focusing on infrastructure. And given that it's an important year, party congress sometime in the autumn, probably we should see China trying to keep growth above 5%.
In terms of headline numbers, we do expect ASEAN to do better this year. Say ASEAN's 6th growth at about 5.2%, last year 3.4%. But here we must take note that it's partly of the starting point.
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