As we head into 2015, a few themes dominate the FX market and they will have substantial impacts on to currencies

  • Firstly, Oil prices will play a hefty role in determining monetary policy, as well as inflation expectations. So far this year, Oil is down some 36%

  • Secondly, the market is still underpricing US hikes... now we may see a change to the fundamentals, but as it stands the US rate market is still way of the pace of the Fed and Taylor rule estimates Looking at each currency bloc in turn we can see the potential moves.

GBP outlook

Near term risks for GBP are on the downside as remaining bulls capitulate with the weakening inflation picture. The basing of inflation would mark the low in market rate expectations and set the GBP base as well.

A potentially doubly hung parliament adds to well flagged uncertainty around May’s General Election. Investors don’t see any positive outcomes for GBP, with a Labour majority/coalition bad for business and Conservative majority/coalition raising prospects of Brexit.

When we look at risks going forward, the options space is pricing in some interesting moves for next may... if we look back to the scottish referendum it is far less sign…