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Q2 2024 Global Currency and Macroeconomic Outlook


Millennium Global is pleased to share its latest quarterly Currency and Macroeconomic Outlook.

This outlook shares our economics and strategy teams’ views on the macro themes that will matter most in the coming quarter and how these are expected to impact global currencies.


Our central case is that the Federal Reserve has the ability to ringfence financial stability concerns

Higher funding costs for small and regional banks are likely totighten US financial conditions via the credit channel, wherelending standards were already being tightened due to monetarypolicy

While we expect growth to slow over Q2, we expect noimmediate recession given momentum in consumption, a stronglabour market and little disruption to lending from large US banks

We expect the growth impact from the excess credit tightening(i.e. that above monetary policy) to be relatively small (c.0.5pp)with a two quarter lag. Coupled with previous tightening, weexpect a mild recession in Q4

A moderation in shelter inflation should slow US inflation, butstrength in wider service inflation and employment should pushthe Fed to do a final hike in May

Euro area disinflation should continue but we expect core inflationto remain elevated, leaving the ECB hiking through the quarter,reaching a terminal of 3.5%. We also see one more rate hike fromthe BoE, but expect the BoC and RBA on pause from here

We expect Japan to exit yield curve control in June and change itsrate guidance to a neutral (from dovish) stance

We expect China to grow strongly over the quarter, driven by arecovery in consumption and a fading drag from the propertysector. However we still expect inflation to remain low andmonetary policy to retain a small easing bias


• Credit tightening in the US accelerates the Fed tightening cycle by hurting growth and reminding the Fed there are lags to monetary policy

• While we disagree with near term cuts from the Fed priced by markets, our view that inflation and growth should moderate
continues to pose downside risks to US 2-year yields

• This leaves our view of dollar weakness unchanged as a receding terms of trade shock and China reopening improve the growth outlook for Europe and Asia, giving rise to interest rate convergence
(US vs Europe and Japan)

• We see dollar weakness being broad based. Crucially, this reflects our near-term positive view on equity risk as fears of banking stress prove overdone, inflation in the US softens and China fully reopens.
The latter should also support commodity prices, despite slower growth in developed markets

• We most like EUR (+) and GBP (+) given resilient banking sectors, improved growth outlooks and hiking central banks.

• We like safe-havens JPY (+) and CHF (+) mainly through the lens of risk-reward. A dovish PBOC suggests AUD (+) is the better
expression of China reopening than CNH (0) given a backdrop where equities and commodities are supported and there are hawkish risks around the RBA. We see CAD (0) as the most likely to underperform
given little domestic driver.

• We continue to like BRL (+) and MXN (+) for their attractive carry, underpinned by relatively hawkish central banks

• We keep our views tactical, given the uncertainty around the size of
the credit tightening and our longer-term caution around recessionary risk, which would likely prompt a defensive rotation

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This piece of content  contains the views and opinions of our Global Economic Research and Strategy Team as of 5th Oct 2023 and does not necessarily represent the views and opinions of Millennium Global or any of its Portfolio Managers.

This information is intended for Professional Clients only, not retail clients. This information does not constitute an offer to buy or a solicitation of an offer to sell and does not constitute an offer or solicitation in any jurisdiction in which such a solicitation is unlawful or to any person to whom it is unlawful.

For further information please see Important Disclaimers here.

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