Currency outlook: Global policy convergence story continues as central banks react to strong growth

Invesco Fixed Income shares its views on currencies around the world

Currency outlook: Global policy convergence story continues as central banks react to strong growth

Time to read: 2 min

US dollar:

We expect our global policy convergence story to continue playing out as central banks react to strong global growth. The US Federal Reserve (Fed) continues to tighten, but at a pace gradual enough for the markets to absorb. We do not expect inflation to force the Fed into a more aggressive stance. This backdrop means that foreign central banks will likely remain the main driver of the US dollar going forward, in our view. As global central banks remove stimulus, we expect the US dollar to depreciate over the longer term.


We expect the USD/RMB exchange rate to trade in a range of 6.5 to 6.7 in a stable US dollar environment and a range of 6.80 to 6.99 if the US dollar strengthens sharply from here. The People’s Bank of China indicated in the 19th Party Congress that currency stability remains a near-term policy priority. Therefore, we expect the spot level of the renminbi to move in tandem with the US dollar but with lower volatility compared to other major currencies. Capital flows have become increasingly two-way compared to previous periods of net outflows, and we expect this to continue in the near term.


We maintain our forecast for further euro appreciation. Global growth momentum is positive while inflation remains subdued. This will continue to support the weak US dollar trend and higher euro valuations. We continue to view pullbacks in the euro as consolidation within a secular trend higher.

Japanese yen:

The yen has been on a generally weakening trend against the US dollar since early September. The move coincides with what appears to be a global improvement in economic data suggesting continued growth in the months ahead. Although expectations of central bank tightening have increased in many countries, the Bank of Japan appears satisfied to keep policy unchanged for now, particularly amid low inflation. We expect the yen to remain range-bound between ¥110-115 against the US dollar through year-end 2017.

British pound sterling:

Brexit discussions between the EU-27 and the UK appear to have reached a stalemate. With the clock ticking down to the March 2019 departure date, UK officials will likely be keen to make a breakthrough soon so that talks can progress to discussing the trade relationship between the parties. We expect progress on talks to be slow and believe that that the probability of a “hard Brexit” could increase over the coming months. This would likely be detrimental to the currency.

Canadian dollar:

The Canadian dollar appears to have peaked for the moment as the Bank of Canada (BOC) has become concerned about the impact of a stronger currency on the economy. Recent growth has slowed from the breakneck pace of the second quarter, allowing the BOC to wait for further information on the impact of its two recent rate hikes before considering its next move. The currency could remain soft until economic data begin to show signs of renewed strength.

Australian dollar:

The Reserve Bank of Australia (RBA) appears to be satisfied keeping interest rates steady. There continue to be only minor changes to meeting statements, which remain somewhat cautious. Despite signs of a steadily improving labor market, inflation and wage growth remain stubbornly low. Low inflation along with a housing market that remains robust should keep the RBA on hold. Despite a recent modest correction, we believe the Australian dollar is still expensive. Our expectation for continued positive global growth keeps us neutral on the currency.

Ray Uy, Head of Macro Research and Currency Portfolio Management; James Ong, Senior Macro Strategist; Noelle Corum, Associate Portfolio Manager; Brian Schneider, Head of US Rates Portfolio Management; Scott Case, Portfolio Manager; Sean Connery, Portfolio Manager; Ken Hu, CIO Asia Pacific; Yi Hu, Senior Analyst;  Alex Schwiersch, Portfolio Manager

1 Source: Bloomberg, data from Aug. 1, 2017 to Sept. 20, 2017.

2 Source: Bank of Canada, Sept. 6, 2017.

Important information

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The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

The dollar value of foreign investments will be affected by changes in the exchange rates between the dollar and the currencies in which those investments are traded.

The performance of an investment concentrated in issuers of a certain region or country is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.

Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions, there can be no assurance that actual results will not differ materially from expectations.

Ray Uy, CFA

Head of Macro Research and Currency Portfolio Management

Raymund Uy is Head of Macro Research and Currency Portfolio Management for Invesco Fixed Income.

Mr. Uy has been in the industry since 1993. He has experience in a variety of functions, including global fixed income trading and portfolio management; currency trading and portfolio management; credit research and macroeconomic analysis.

Mr. Uy worked at Hartford Investment Management (HIMCO) for eight years prior to joining Invesco in 2012. At HIMCO, he was a lead portfolio manager for non-US-dollar-based fixed income portfolios, and as head of Fixed Income Trading, he managed a centralized platform of traders across multiple fixed income sectors. Before joining HIMCO, Mr. Uy spent six years at Mackay Shields in New York and five years at Fiduciary Trust.

He earned a BBA from Hofstra University in New York, and is a CFA charterholder.

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