Credit Agricole

Central case: Ample fiscal and monetary stimulus as well as vaccine rollouts to boost the global economic recovery, trade and inflation from here. Risk-correlated assets to remain supported so long as global central banks manage to avoid unwarranted tightening of global financial conditions.

Main risks: The pandemic is posing stagflation risks to the global recovery that could hurt growth and boost inflation. Tighter global financial conditions can disrupt the recovery further and put the risk rally to the test.

US: ‘Easy fiscal and tighter monetary policy mix’ upfront but, potentially, higher taxes and overregulation in the long run could help the USD in the near term (higher UST yields) but weigh on the currency in the long term (cyclical trade and diversification flows).

Europe: economic recovery to pick up further but the ECB to remain dovish and the BoE less hawkish. EUR recovery from a pick-up in global trade delayed to 2022. Idiosyncratic GBP risks warrant cautiousness.

Asia: The post-Covid recovery in Asia has been running out of steam, and this has detracted from the appeal of the AUD and NZD. A re-escalation of the US-China trade conflict is the key downside risk.


It is a quiet start to the week in FX markets as investors wait on a whole raft of central bank policy decisions next week. This week the focus will be on tomorrow's release of August US CPI and what, if anything, it means for the key FOMC meeting on September 22nd. Let's see if investors choose to take some chips off the table this week.

USD: The dollar has started the week on a slightly firmer footing. Points of attention seem to be the Democrats putting some flesh on the bones of how they plan to pay their infrastructure bill, with reports suggesting they plan to raise corporation tax to 26.5% from 21% and capital gains tax to 25% from 20%.

Equities: As noted before, September has seasonally been one of the softer months for the S&P 500 and equity investors may be tempted to adjust to more risk-averse settings ahead of twin event risks in the form of the Fed meeting and any progress on tax hikes.