Domestic tightening stories remain key across the G10
Since the dollar is overvalued against all G10 currencies except for CHF, according to our BEER model, the same reasoning can be applied to the more general spectrum of USD crosses. Incidentally, we could see domestic stories – especially on the central bank side – dominate before a clearer dollar trend emerges later in the year.
In the UK, the Bank of England’s aggressive fight against ultra-sticky inflation should keep the GBP curve highly inverted, which can ultimately keep a reserve currency like the pound supported for longer. Japanese authorities look once again on the brink of FX interventions, as USD/JPY trades close to the 145.00 mark, but some help for the yen might actually come from a hawkish tweak to the yield-curve-control policy by the Bank of Japan this summer.
In Europe, Scandinavian central banks are deploying FX-supportive tightening packages. We favour NOK over SEK thanks to a more hawkish Norges Bank stance and elevated domestic risks in Sweden.
