www.research.hsbc.comDisclosures&Disclaimer:ThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.CurrenciesGlobalMay2019By:HSBCFXStrategyCurrencyOutlookWhendovesflaptheirwingsThedovishpivotamongG10centralbanksbeyondtheUScontinues,fosteringanextensionhigherintheUSD.ThedollarrallymayalsohavesomejuiceleftfromtheUSsideoftheequation.WithafreshbattleloomingbetweentheFedandadovishmarket,thehighyieldingUSDremainsourpre-eminentcurrencyofchoice.WeaknessonanindustrialscaleG10FXperformancehasbeencloselylinkedtothemanufacturingsectorin2019.Currencieswithlargemanufacturingexposureshaveunderperformedthosewithsmallerexposures.Fornowitseemsthereismoredepreciationtocome,withthemanufacturingsectorshowinglittlesignofstabilising.1Currencies●GlobalMay2019Thepivot–whendovesflaptheirwings(pg3)ThedovishpivotamongG10centralbanksbeyondtheUScontinues,fosteringanextensionhigherintheUSD.Insomeinstances,alotofthemoveintheUSDislikelyalreadycompleteasmarketsdigestcentralbankpivots.But,theUSDrallymayhavesomejuiceleftfromtheUSsideoftheequation,ratherthansimplybecauseofothercentralbanksbecomingmoredovish.WithafreshbattleloomingbetweentheFedandadovishmarket,thehighyieldingUSDremainsourpre-eminentcurrencyofchoice.Evenifallcentralbanksdidnothingfortherestoftheyear,thiswouldstillbetotheUSD’sadvantage.Weaknessonanindustrialscale(pg8)G10FXperformancehasbeencloselylinkedtothemanufacturingsectorin2019,currencieswithlargemanufacturingexposureshaveunderperformedthosewithsmallermanufacturingsectors.Thismayhelptoalleviatesomeofthesector’swoesatsomepoint.Butfornowitseemsthereismoredepreciationtocome,withmanufacturingshowinglittlesignofstabilising.EvenifFXcanprovidesomecyclicalsupport,itisnotclearthatthisdepreciationwouldbeenoughtooffsetsomeofthepotentialnegativetrendswhichpointtolong-termweaknessinmanufacturingandthosecurrenciesmostexposedtoit.TheGreatGapsby(pg11)Gapriskismuchmoreprevalentnowdespitebroadlylowervolatilityacrossassetc...
