What we think


Politicians’ actions are likely to prove particularly important to foreign exchange (FX) rates in 2020, and commodities will feel the consequences too.


The USD is overvalued on many conventional measures and pressures for intervention (in various forms) will continue as new policy frontiers are explored. Its strength is therefore probably peaking, although we do not expect a sharp decline in its value. The EUR will continue to face its own, largely domestically generated, challenges. Populist politics seems likely to have an impact on the region’s major economies, and currency markets may be unsettled by the evolution of ECB policy under its new head, Christine Lagarde. Investors will therefore look for currencies that can act as portfolio diversifiers. The JPY has played this role well over the last year and may continue to do so.


The case for real assets plus a likely moderation in USD strength points to opportunities in gold. Meanwhile, oil prices will suffer from slowing global growth but political spats will cause temporary upward blips during the year.



What we suggest

USD strength peaking

  • Our end-2020 forecast for EUR/USD is 1.15, which implies a slight depreciation from current levels, though any moderation in USD strength is likely to be interrupted by periods of temporary USD strength at times of global uncertainty.

Use selected currencies as a diversifier

  • Although volatility is currently relatively low and risks are (probably wrongly) perceived as “known”, spikes in global volatility will occur, with political developments a potential sentiment destabiliser. Against this background, we continue to believe that a long JPY position will prove to be beneficial for many portfolios.


Gold takes a shine

  • History suggests that a rising U.S. budget deficit can be associated with upward pressure on the gold price.


Past performance is not indicative of future returns. Forecasts are not a reliable indicator of future performance.

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