Millennium Global has released its Q1 2022 Global Currency & Macroeconomic Guide. Click here to view a full PDF of the research
Key trends which specifically affect treasurers in next quarter are:
- The data shows that although Covid 19 is ever present in markets we are still likely to see a stronger labour market led by the US driving outperformance.
- Central banks are likely to be willing to normalise balance sheet policies in most countries. However, only specific markets are likely to deliver monetary policy tightening despite broader pricing.
- US: With the Fed likely to end its purchases at the March meeting, we expect rates to be raised by May at the latest, given the more persistent upside risk to the CPI and the continued improvement in the labour market, which should support the USD vs. EUR, JPY and CHF.
- UK: With inflation expectations well above target and long term averages, GBP is likely to be supported by BoE hiking cycle, although well priced. Additionally, set amidst a background of Brexit tensions and ongoing Covid uncertainty.
- EUR: In addition to the recent increase in covid cases, which poses a downside risk to economic activity, we see the recent surge in CPI in the Euro Area as less persistent, due to weak wage growth and inflation expectations that remain low, below the 2% target. Therefore, the ECB is unlikely to raise rates in 2022.
Eric Huttman, CEO, MillTechFX, a Millennium Global firm, comments:
“From the research conducted by Millennium’s macro team, it is clear that the impact of the pandemic is still going to be felt in markets across the board in 2022 and this data emphasises that policy diversion is likely to be the strongest driver of currency markets in Q1.”
“In the UK specifically, Millennium’s macro team’s view is that inflation expectations are clearly above average with Brexit compounding the ongoing impact of the pandemic. Against this backdrop it is more important than ever that those trading in foreign exchange gain a transparent view of their execution setup, streamline their operational workflows and implement hedging strategies in order to carefully manage their currency exposures in the year ahead.”