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Economic outlook for major currencies

USD: Unemployment data out of US and Dallas Fed chairman Fisher comments about the need to raise interest rate provided a further rally amid lack of US data this week. Market is already pricing in the first rate rise around July-August this year, and with central banks of other major currencies like EUR and JPY still in the easing mode, we expect the yield differential to widen further leading to a further upside for USD.  However, a caveat to keep in mind is - how much Fed is willing to let USD appreciate before starting to get worried?

EUR: QE is causing big money outflow out of Europe in to countries offering price stability and modest returns, this will lead to a broad based weakening of EUR, with market participants already eyeing EURUSD parity. German 10-year Bund yields fell to a record low at 0.199% on Wednesday, Spanish and Italian 10-year yields were also near record lows. Outflow abroad will also cause yields in those countries to remain low or fall as demand will far exceed supply. This will cause a global imbalance over a few years to come.

GBP: Sterling accelerated vs. EUR to 7-year highs since QE plan was unveiled by Draghi last week. Though USD has had a significant advance, GBPUSD only retesting its 2015 lows.  GBP is likely to remain generally strong despite UK election looming, as Carney and BOE continue to sound relatively hawkish. However, problem areas are that falling EUR and low growth Eurozone are not good for UK exports, add to this any slip in the economic recovery may turn outlook bearish for GBP.

NOK & SEK: With negative deposit rates and a rapidly declining EUR posing more problems for Scandinavian currencies, Norges Bank & Riksbank look set to ease even further. Oil is also likely to weigh heavy on NOK. We see a continued decline for both currencies, especially vs. USD over the medium term.