August sees US data coming on strongly, but new challenges emerge

A flurry of mixed indicators were beginning to shake up the FX ecosystem as we came into August, dashing hopes for a leisurely summer break.

In the US, strong financial markets spurred a so-called “Goldilocks” scenario where growth is neither too hot to drive inflation nor too cool to disappoint.

And while the Fed and ECB might finally pause rate hikes, new concerns surrounding tight credit conditions have introduced challenges for business and consumer lending.

Elsewhere, there were renewed questions about how major players in the global economy — particularly China and Germany — would react to a manufacturing slowdown. 

To help investors formulate a future payments strategy, Convera’s August FX Outlook featured a wide range of future currency scenarios and previews key market themes to watch.

On a wider level, the first half of 2023 brought non-stop rate hikes and a battle against stubborn inflation — and as we enter Q3, the impact on global businesses is coming into focus.

From banking strains to fears of a credit crunch, the FX ecosystem is filled with new challenges. Against this backdrop, was designed to provide in-depth analyses of key markets and forecasts the potential for recessions and slowdowns across regions.

Region by region, the USD index hit a 15-month low in July as a drop in inflation made markets less certain of further Federal Reserve rate hikes. Markets now see four 25bps cuts between now and November 2024.

The British pound continues to be the best-performing G10 currency this year. Markets expect the Bank of England will continue to provide support, looking for official rates to rise as high as 5.75%

The Australian dollar remains pressured with the AUD/USD continuing to spend time below 0.6670 – a level it has historically spent less than 5% of its time below over the last 20 years.

And more generally, the euro extended the gains seen so far in 2023 with EUR/USD reaching the highest level since February 2022 last month, before reversing course after the dovish European Central Bank hike.

In detail: Convera’s Q3 Global Economic Outlook