Barclays Research discusses the recent conditions of the FX markets and what could be on the cards going into next year.
"FX markets are experiencing a temporary reprieve from reality, in our view, believing that the Fed may be near the end of its hiking cycle and that other economies could rise amid the deceleration of the US economy that would imply.
While this market narrative lasts, we see the possibility that higher carry likely could help EM currencies grind higher temporarily and some G10 currencies may join in. But, by early in the New Year, we expect the reality of sustained US divergence to bite, reinforcing the USD’s highlevel range trade versus G10 currencies and sustained appreciation versus EM FX.
Against this backdrop the EUR faces downside risks, the JPY likely will benefit and sterling’s outlook is increasingly bimodal," Barclays argues.