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Jan 02 - 12:55 PM

Credit Agricole: Here are the Key developments for the G10 FX Markets in 2024 and 2025

By eFXdata  —  Jan 02 - 11:00 AM

Synopsis:

Credit Agricole provides insights into expected developments in G10 foreign exchange (FX) markets for 2024 and 2025, focusing on cyclical and policy convergence, political and geopolitical risks, and specific currency dynamics.

Key Developments:

  1. Cyclical and Rate Outlook Convergence:

    • A significant development is the anticipated cyclical convergence between the US economy and other G10 economies. This includes a convergence of the Federal Reserve’s rate outlook with that of other G10 central banks.
  2. US Political and Geopolitical Risks:

    • US political scenarios, particularly surrounding the 2024 presidential elections, along with ongoing global geopolitical risks, are expected to be prominent drivers in the FX markets.
  3. USD Dynamics – Mid 2024:

    • The US Dollar (USD) might move towards the bottom of the 'USD-smile' around mid-2024, driven by a diminishing rate advantage. However, aggressive Fed easing already priced in might limit further USD depreciation.
  4. USD Outlook in Late 2024 and 2025:

    • The potential mild recession in the US and political risks could fuel risk aversion, supporting the USD in late 2024. Assuming risk aversion decreases and the Fed engages in more aggressive easing, a general USD decline is expected in 2025.
  5. EUR/USD Dynamics:

    • A relatively dovish policy stance by the European Central Bank (ECB) and persistent growth concerns in the Eurozone could lead to a weaker Euro (EUR) in 2024. However, in 2025, reduced global risk aversion and aggressive Fed easing might push EUR/USD higher.
  6. JPY Outlook:

    • The Japanese Yen (JPY) is likely to benefit from the commencement of the global easing cycle, normalization of the Bank of Japan's policies, and increased repatriation flows into Japan.

Conclusion:

Credit Agricole's analysis suggests a complex and evolving FX landscape for the coming years, characterized by cyclical and policy convergence, significant political events, and diverging central bank actions. These factors are poised to influence major currencies like the USD, EUR, and JPY, resulting in shifting dynamics and potential reversals in currency trends.

Source:
Crédit Agricole Research/Market Commentary

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