We see risks that investors will reprice the ECB's cutting path lower. An increased deviation between HICP fixings and forecasts, a sudden rollover in Italian growth and increasing focus on downside risks to r* are all potential catalysts to price in a deeper cutting cycle – and weigh on EUR.

Our long GBP/CAD recommendation has had a good run, and policy divergence has supported this trade. We no longer recommend long GBP/CAD positions given limited upside potential and stretched positioning.

A cooler labor market plus a stickier core inflation print amplify hard landing concerns and reduce market hopes of a proactive Fed response. This means we expect FX market turbulence as we stay in the defense regime; JPY longs remain the clearest trade but we stay neutral on the DXY.

To help corporates choose the right FX hedge, we offer a framework based on the performance of real rates and breakevens. Using them as signposts for the macro environment can reduce risk and generate alpha.

A more dovish Fed reaction function skews USD risks from upside to downside, but forces abroad, still-present political risks and stretched positioning mean we're not yet sold that the DXY will break below 100. JPY is our top long while AUD and GBP should outperform the funders EUR and CAD.

I've spent most of the last four months on the road seeing clients. What have I learned? Quite a lot. I detail the most common themes and questions.

To help corporates choose the right FX hedge, we offer a framework based on the performance of real rates and breakevens. Using them as signposts for the macro environment can reduce risk and generate alpha. For newcomers to hedging, we review the basics.

The choppy relationship between FX and risk assets is partly explained by equity market breadth. We find that G10 FX relationships to equities are 'cleaner', larger, and more significant when equity market moves are broader. 'Narrow' equity market moves tend to be more negative for European FX.

EUR pessimism is still underpriced. The quantity of GDP growth has improved, but increasing concentration in low-productivity sectors like tourism raises risks of lower-quality growth. Political risk premia may shift from France to Germany. Stay short EUR/USD to hedge both US- and Europe-based risk.

Markets are underpricing dovish risks in Canada, and BoC cuts could render CAD a key funding currency. We add GBP/CAD longs and see increasing risks of a convex move in USD/CAD above 1.40, especially in a risk-off market.

Our framework shows that real rates and breakevens go a long way towards explaining USD's behavior. But short rate differentials matter and can meaningfully amplify or dampen the broader USD path.

What do rates mean for USD? It depends on which angle you view them from. We view rates from six different angles: three are USD-positive, one is USD-negative, two are mixed. The USD-positive angles all relate to rate differentials, which may matter more in a policy divergence world.

FX vol may be the most important driver of 2024 macro markets as central banks' ability to diverge from the Fed is inversely related to how much their currencies weaken in response. Carry remains the dominant FX driver but increased defensive demand keeps USD attractive versus low yielders.

Carry and 'regime 2' are firmly consensus but risks are rising of a shift to regime 3, which sees a broader and more volatile USD rally. Short EUR/USD via options benefits in both regimes 2 and 3, with risk/reward amplified by geopolitical risks and rising chances of Fed-ECB policy divergence.

Conventional wisdom assumes the London/NY overlap is the best time to trade FX. We estimate this time zone sees the most price movements and positioning changes. But market depth and liquidity aren't automatically best; geography and seasonality have an influence too.

Debt sustainability is far more nuanced for FX than investors assume. Rising interest rates raise expenses, but also reduce the market value of existing debt, generating unrealized gains, and growth matters too. USD screens well when incorporating our nuanced view of debt sustainability.

USD's frustrating stability is explained by the balanced forces of simultaneous US equity and US growth outperformance. We're neutral on USD for now but think that the USD-positive growth and rate outperformance forces will eventually win out. We stay short EUR/USD via options.

Eurozone data have beaten expectations but are far from pretty, pretty, pretty good. Our economics team's growth forecasts imply an output gap of -1% this year, raising risks that markets will price in a faster and deeper ECB cutting cycle and a weaker EUR. Stay short EUR/USD via options.

EUR/USD puts are an attractive and cheap buy to hedge for various outcomes, particularly as an overlay to long-equity portfolios. We recommend 1y EUR/USD puts around at-the-money spot.

'When is the first rate cut?' For FX, 'how fast', 'how low', and 'why are they cutting' matter more. European currencies are vulnerable if markets begin pricing in a cutting cycle for 'bad reasons.' Short EUR/JPY remains our top trade to benefit from local and global factors.

We recommend buying 2-week EUR/GBP calls. EUR/GBP shorts appear stretched given investors' focus on carry and EUR/GBP vol seems complacently underpriced. Risks from expansionary fiscal policy at the March 6 budget keep the window narrow, though.

This note seeks to answer our clients' least-asked question. "Who will matter more for the US dollar – Bill Murray or Julius Caesar?" Key catalysts are concentrated around both Groundhog Day (February 2) and the Ides of March (March 15).

We recommend long NOK/SEK. Norges Bank is slowing its NOK sales dramatically as the Riksbank's SEK-buying FX-hedging programme is about to end, while Swedish data are underperforming peers meaningfully. Expected rate differentials imply NOK/SEK rising to 1.06.

The USD tried - and failed - to rally as falling rates and buoyant risk appetite drove Regime 1 in FX, generating universal USD weakness. We turn neutral (from bullish) on the USD but still see tactical upside risks given positioning, seasonality, and overextended momentum. Pivot short EUR/USD to short EUR/JPY.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning, and drivers.

Next week matters for EUR/USD, and tail risks skew toward policy divergence: a Fed hawkish surprise in Washington; an ECB dovish surprise in Frankfurt. A 'bear divergence' in US-EU rates, aided by a re-acceleration in US core inflation, may add 'USD-bullishness' to the market's 'EUR-bearishness'.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning, and drivers.

Our call for EUR/USD to fall to parity in 1Q24 may seem increasingly unlikely, but the macro thesis still holds. The USD selloff has likely run its course, we don't think Europe weakness is fully priced in, and austere European fiscal and a dovish ECB are important EUR-negative risks.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning, and drivers.

We explore the sensitivity of G10 currencies to the performance of their local housing markets and investigate which housing-related economic factors to watch out for.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning, and drivers.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning, and drivers.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.USD strength is set to continue as investors price in greater risks around the global ‘soft landing’ scenario. We remain bullish the USD versus EUR and AUD.USD View: Bullish | Skew: BullishUSD strength should continue as investors price risks around the global growth outlook, particular...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.Growth divergence in favor of the US and risks to the global 'soft-landing' scenario should continue to support USD. We remain bullish USD versus EUR and AUD and recommend short GBP/CAD.USD View: Bullish | Skew: BullishUSD strength should continue as US data outperformance, elevated G10 car...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.We think markets remain complacent about the risk of a US 'hard landing' repricing. We remain bullish USD, particularly versus EUR, AUD, and CAD. USD View: Bullish | Skew: BullishInvestors appear complacent about the idea that a slowing US economy can raise market-implied risks of a global...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.We expect USD/JPY to decline as policymakers’ attention increasingly turns to financial stability considerations and yield differentials move away from the US USD View: Neutral | Skew: BearishFinancial sector volatility raises uncertainty over the US and global growth and inflation outloo...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.Risks that US inflation proves more persistent should limit USD weakness in the near-term, while surprisingly firm global growth should support risk demand later this year.USD View: Neutral | Skew: NeutralThe USD remains caught between above-expectations global growth and increased investor...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.Falling global inflation and a China reopening should support risk-sensitive FX in 2023. USD weakness is moderated by high US interest rates and lethargic growth.USD View: Bearish | Skew: BearishContinued deceleration in inflation supports our economists’ expectation of a slowdown in Fed...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.Global growth buoyancy, falling inflation risks, and a reduced US carry advantage should see broad USD weakness, with gains led by EUR and risk currencies.USD View: Bearish | Skew: BearishContinued deceleration in inflation supports our economists’ expectation of a slowdown in Fed tighten...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning and drivers.Falling global inflation against a bearish consensus should support risk-sensitive FX in 2023. USD weakness is moderated by elevated US interest rates and lethargic growth.USD View: Neutral | Skew: BearishDownside USD risks are rising as US disinflation enables the Fed to hike less...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning, and drivers.Continued growth challenges abroad and upside risks for US rates will likely keep USD broadly supported.USD View: Bullish | Skew: BullishWe expect USD to rise versus EUR, GBP and CAD. Neither a peak in Fed expectations nor a nadir in global growth expectations remain likely soon. EUR View...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning, and drivers.Robust US data, especially inflation, suggest financial conditions need to tighten further, while RoW growth expectations remain under pressure, both supporting USD.USD View: Bullish | Skew: BullishUSD strength should continue as global growth expectations continue to soften and Fed...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning, and drivers.USD strength looks poised to continue; we forecast the DXY will rise to 112 by 3Q22 and recommend short EUR/USD targeting 0.97USD View: Bullish | Skew: BullishUSD strength should continue broadly until we observe both bottoming global growth expectations and peaking Fed expectations, neith...

Top charts we are watching for each G10 currency with economic indicators, flows, positioning, and drivers.Stronger US employment and weaker CPI inflation challenge the stagflation narrative in the US. We think the inflation is here to stay for a while longer. Stay long USD.USD View: Bullish | Skew: BullishUSD should remain firm as Fed normalization continues and foreign growth expectations...