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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
The recent commentary from UBS highlights the tensions around US-Iran negotiations and the implications for oil markets, which may also affect broader FX trading. Per the full note, President Trump's firm declaration that Iran's response was 'totally unacceptable' suggests that investors should brace for continued volatility. Furthermore, rising oil prices following this rhetoric reinforce the notion that geopolitical tensions are a significant driver in the market dynamic. The desk emphasizes that fluctuations in oil prices will likely impact currencies tied to energy exports, signaling to traders the need to monitor developments closely.
The desk argues that the geopolitical landscape surrounding the US and Iran is detrimental to market stability, particularly in oil and energy-dependent currencies. The US's labeling of Iran's response as 'totally unacceptable' may lead to heightened tensions and fluctuations in oil prices, creating a ripple effect across currency valuations dependent on oil. This view is supported by the recent uptick in oil prices as tensions escalate.
Additionally, with China's inflation data showing an increase in both consumer and producer price inflation, the desk notes that these dynamics could further exacerbate market volatility. Per the commentary, as the Chinese government allows more inflation to permeate, it might indicate a strategic move to stabilize domestic fuel demand amid potential supply disruptions.
Our consensus target for relevant currency pairs currently stands at 1.075, with a range of 1.04 to 1.12. Key firms contributing to this include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective aligns with jpmorgan's stance, while standing in contrast to bofa, which presents a more conservative outlook. The desk's position towards the higher end of the forecast reflects an expectation of continued market pressures stemming from geopolitical tensions.
Several firms align with the desk's views, notably jpmorgan, which sees potential gains in oil-related currencies given the current geopolitical climate. Conversely, bofa remains more bearish, suggesting potential downward pressure from economic readjustments in response to these geopolitical events.
Traders should watch the USD/CAD pair, which is sensitive to oil price fluctuations, and remain alert to shifts in central bank communications, particularly from the US Federal Reserve, as it navigates these external pressures.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should monitor oil price movements closely, particularly as tensions with Iran unfold and impact supply. The upcoming communication from the Federal Reserve regarding US inflation may also provide cues on USD strength amid these geopolitical risks.
Risks to this view
Failure to reach negotiations between the US and Iran could lead to an abrupt reversal in oil prices, thus impacting currencies tied to energy. Additionally, unexpected data from China regarding inflation could shift momentum in the market if it deviates significantly from current expectations.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Monday the 11th of May. Last week's Axios Newswire reports that the US and Iran were closing in on a deal seems to have followed the pattern of other such reports, in not being entirely accurate.
US President Trump declared this weekend that Iran's response to US proposals was quote, totally unacceptable, using capital letters to emphasise the point. Oil prices rose. Again, the challenge for investors is that the timing of reopening the Strait of Hormuz depends on the attitude of Iran, about which there is very little information.
News about the Iranian position originating from the United States cannot be considered reliable, given that so many statements coming from the US administration in the past have subsequently been confounded by reality. China's inflation data for April showed the government is allowing more of the oil price inflation to seep into the economy. Both consumer and producer price inflation rates increased by more than expected on energy and energy-related costs.
Producer price inflation in China is now the highest in over three years. Food prices are still falling for consumers, led by pork price deflation. But as China doesn't export food, this is an entirely local affair.
China's government exerts considerable control over domestic fuel prices. Allowing some fuel price increase to hit the end consumer means that the price mechanism should moderate fuel demand, at least to some extent. If one wants to be Machiavellian in one's analysis, allowing the pricing mechanism to restrain demand might be a signal that China is preparing for a more extended period of disrupted oil supply.
The scheduled summit between China's President Xi and Trump, which is due to begin on Wednesday, has, so far, had very little impact in the financial markets. China has little incentive to pursue gold bar diplomacy with Trump, given the relative standing of the two countries in international events. Past summits have produced a lot of spin, which has rarely translated into a great deal of economic substance.
Even if there are some social media-ready statements on investment or soybeans, it's unlikely that markets will assume much changes at a macroeconomic level. UK politics might attract some interest in obscure and dark corners of the global investor base. In spite of the local elections producing results at the better end, or at least the least bad end, of the expected range, an obscure Labour Member of Parliament has said that they will challenge the Prime Minister for leadership of the party.
It is unlikely they'll get enough support to do this, but it allows for more media speculation. As the results produced wins for the far-right and nationalist parties, which generally define themselves in terms of what they are against rather than what they are for, it's not clear what positive policies could be used to counter the current political trends. But markets are concerned that any such policies will cost money.
That's all for today. Have a good day. This material has been prepared and published by the Global Wealth Management Business of UBS Switzerland AG, regulated by FINMA in Switzerland.
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