2026-07-27 08:04

Key takeaways We see downward pressure for GBP-USD given easing inflation and weaker labour market data. The key risk comes from higher oil and gas prices, which could feed into inflation, over the coming months. EUR-USD could move lower without firm central bank commitment to support interest rates. GBP faces a familiar mix of headwinds. Domestically, the data points to easing inflation pressures and a softening labour market; externally, geopolitics and policy uncertainty maintains the risk premium investors demand to hold UK assets. With headline CPI down to 2.6% y-o-y, the case for near-term Bank of England (BoE) hikes looks less urgent, even though markets still price tightening through April 2027. Yet, with a softer labour market, HSBC Economics sees a high bar for the BoE to turn decisively more hawkish. GBP has nonetheless held up over the last month supported by higher yields. The key risk remains geopolitics. The US-Iran conflict has lifted oil and gas prices with the pass-through to CPI typically lagging several months. But, on the political front, the proposed VAT cut on electricity bills and uncertainty over funding shows a core GBP vulnerability. With recent strength in the rear-view mirror, this mix leaves GBP vulnerable, especially if energy risks persist and policy credibility wobbles. Source: Bloomberg, HSBC EUR weighed down by cautious tone. On 23 July, the European Central Bank (ECB) held rates at 2.25% and reiterated a data-dependent, meeting-by-meeting stance. President Lagarde highlighted no signs of second-round inflationary effects and therefore, no immediate need to hike rates. This message underwhelms and weakens support for EUR-USD. EUR-USD has been remarkably stable over the last month propped up by higher yields as markets markup inflation and tightening expectations in response to rising energy prices. But that’s a fragile kind of support and only lasts as long as the ECB is perceived as prepared to deliver. The challenge is that the eurozone economy is not in great shape and the renewed surge in energy costs risks hitting industry just as green shoots were emerging. Without a firmer commitment to support interest rates, we think EUR-USD is likely weaken as investors refocus on growth downside and terms-of-trade risks. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/gbp-eur-downside-from-softer-growth/

2026-07-20 12:01

Key takeaways USD is likely to grind higher against many currencies on Fed policy divergence; AUD and NZD may be exceptions. AUD-USD has upside from “carry” profile and sensitivity to global growth momentum. NZD-USD is underpinned by potentially aggressive central bank rate hikes. We expect the USD to grind steadily higher against several major and emerging markets currencies in the coming months, supported by monetary policy divergence, with the Federal Reserve (Fed) likely to hold rates higher for longer than many peers. That said, we see two notable G10 exceptions that can buck this trend and outperform the USD in the near term: the AUD and NZD. AUD-USD: poised to rebound We continue to see scope for AUD-USD upside into 2027, supported by Australia’s relatively high absolute yield levels – across both cash rate and government bond yields – which leave the AUD screening favourably on a carry basis within G10 FX (i.e., borrowing in a lower-yielding currency to invest in a higher-yielding one). We also see reasons to believe AUD-USD may have bottomed out, given the AUD’s strong ties to global growth momentum. Resilient US activity has supported that backdrop and can benefit growth-sensitive G10 currencies, with the AUD typically performing well in this environment – particularly when the Fed is on hold. Source: Bloomberg, HSBC NZD-USD: supported by monetary policy New Zealand’s growth upswing appears to be gaining traction, with retail sales rebounding, consumer sentiment improving and the PMI rising to 59.7 in June. The Reserve Bank of New Zealand (RBNZ) delivered its first hike in July, lifting its cash rate by 25bp to 2.50%. HSBC Economics expects 25bp of tightening per quarter, taking the cash rate to 3.50% in Q3 2027, while markets are pricing a faster path. We see the RBNZ’s stance as NZD-positive: it is priced to hike the most in G10 over the next year yet remains comfortably below the upper end of estimates for the neutral rate. Key risks stem from NZD’s high sensitivity to global growth, particularly if spillovers from the Middle East conflict weigh on activity, an exposure amplified by New Zealand’s high oil-to-GDP intensity among G10 net energy importers. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/strong-usd-but-aud-and-nzd-may-outperform/

2026-07-16 08:04

Key takeaways Middle East disruptions persist, but lower oil prices may ease upstream input costs and downstream margin pressure. Domestic activity is still soft; reforms are ongoing, with scope for more fiscal stimulus if conditions don’t improve. Exports are benefiting from improved China-US relations and could get an additional lift if Middle East tensions ease. China data review (June & Q2 2026) GDP growth slowed to 4.3% y-o-y in Q2, the softest pace since end-2022. While external sector activity accelerated and provided support for industrial production (5.3% y-o-y in June), domestic demand has slowed. Fixed asset investment continued to weigh on growth, -11.2% y-o-y in June, primarily through weak infrastructure (-10.2%) and property (-24.4%) investment. Infrastructure spending has now contracted by double digits for two straight months, partly reflecting local government fiscal constraints, while the property slump deepened despite pockets of improvement in the largest cities. Industrial production remained solid in June, rising 5.3% y-o-y, supported by stronger exports linked to the global AI demand cycle and the domestic push for industrial upgrading. Computer and communications equipment output rose 15.7% while computer and electronics manufacturing investment was up 6.5% year-to-date, even as overall manufacturing investment fell. Retail sales returned to growth in June, up 1.0% y-o-y, helped by base effects. However, underlying demand remained soft as policy support fades: auto sales fell 16.1% after the halving of auto tax exemptions and household appliance sales dropped 8.7% on a high base from earlier trade-in programs. In contrast, communication appliances were up 16.5%, partly on AI-related price increases. Exports rose 27% y-o-y in June driven by strong AI-demand (high-tech exports +52%), increased urgency for energy transition and stabilising China-US relations (direct exports to the US +26%). Imports surged 36% y-o-y reflecting increased demand for tech-related components (high-tech imports +58%), imports from the US (+35%) and alternatives to global oil imports. China’s June inflation print showed another month of divergence. CPI edged down to 1.0% y-o-y in June amidst lower vehicle fuel prices and softer food prices, particularly for pork (-15.9%). Meanwhile PPI climbed further, to 4.1% yo-y, driven by base effects, the anti-involution campaign and robust global AIrelated capital expenditure which supported price gains in the computer sector. Resilient despite domestic challenges The ongoing conflict in the Middle East continues to disrupt global supply chains, although oil prices now have fallen meaningfully from recent highs. For China, this may ease upstream cost pressures and provide some margin relief for midstream and downstream industries that struggled to pass on higher input costs due to the still subdued consumption. Domestic headwinds Recent activity data points to persistent challenges, particularly weaker consumption and investment. Policy efforts still lean on structural measures, such as reforms to grant migrants access to public services based on residence rather than household registration (hukou). If momentum does not improve, we expect additional fiscal support, including front-loaded infrastructure investment to advance priority projects identified in the 15th Five Year Plan. Pockets of resilience A resolution to the Middle East conflict could lift global demand and provide further support to China’s exports, while reducing petrochemical disruptions and easing margin pressure in downstream industries. Even if the conflict escalates, China may prove relatively resilient due to sizeable oil reserves and coal-to-chemicals production, though it is not fully immune. Primary plastics, which depend on crude oil inputs, fell 12% m-o-m in April; with China suppling around one-third of global primary plastics, extended disruption could affect global supply and pricing. Export tailwinds There are also tailwinds emerging, mainly from improving China-US relations. Current discussions include lowering tariffs on non-sensitive goods (worth cUSD30bn) and establishing a Board of Investment to pave the way for China FDI into the US in non-sensitive, non-strategic areas. Strong global AI-related demand and rising demand for energy transition products (e.g. electric vehicles, solar, wind) should underpin China’s exports, with net exports likely to make a significant contribution to China’s GDP growth this year. However, China’s consumers are still unlikely to shift materially away from cautious spending in the near term. Over the medium term, reforms to improve social safety net coverage and settle migrant workers in urban areas are likely to boost both consumption and investment. Near term, supply chain restructuring linked to the potential tariff reduction – likely focused on consumer goods – should help create jobs and improve consumer confidence. Source: Wind, HSBC. Note: CAGR = compound annual growth rate Source: Wind, HSBC Source: LSEG Eikon * Past performance is not an indication of future returns Source: LSEG Eikon. As of 14 July 2026, market close https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/resilient-despite-domestic-challenges/

2026-07-13 08:03

Key takeaways USD may see gradual upside on US resilience and the Fed staying higher for longer. EUR could be weighed down by lower rate expectations while GBP is seeing weaker cyclical support. We expect modest CAD depreciation in line with rates and oil. We shifted to a more constructive view on the USD after the June Federal Open Market Committee (FOMC) meeting and expect the currency to grind higher in the coming months. This outlook is supported by continued US economic outperformance and reinforced by monetary policy divergence, with the Federal Reserve (Fed) likely to keep rates higher for longer than other major central banks. EUR: On the backfoot EUR-USD may come under pressure as markets refocus on interest rate differentials. Expectations for the European Central Bank (ECB) have been scaled back to slightly more than one 25bp hike by year-end, down from two previously, widening the perceived policy gap versus the US and weighing on the EUR. Headwinds could intensify if shipping through the Strait of Hormuz does not normalise. GBP: Exposed to USD strength GBP-USD is being driven by its usual cyclical drivers – Bank of England pricing, global risk appetite, and relative rates – but GBP is increasingly sensitive to broad USD strength as tighter US-UK rate differentials erode its yield advantage. The arrival of a new Prime Minister could determine whether UK policy uncertainty becomes the dominant narrative, an outcome that could leave GBP more vulnerable. Source: Bloomberg, HSBC Source: Bloomberg, HSBC CAD: Limited scope for resistance We expect slower, gradual weakening for the CAD against a stronger USD, particularly as CAD still appears relatively rich versus its historical relationship with the broader USD, albeit by a smaller margin than a month ago. USD-CAD now looks more consistent with rate differentials and the same is true for its relationship with oil prices. The US-Mexico-Canada Agreement (USMCA) review has, so far, been largely neutral for the CAD. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-steady-grind-higher/

2026-07-09 12:01

Key takeaways Activity in June was subdued, while sentiment is weak but stable. An easing of tensions in the Middle East and a lower savings rate could see some resilience, though inflation is still set to rise. Questions remain as to whether a new UK government will help or hinder the currency. Activity and employment down, but some pockets of resilience UK economic data in June showed an economy losing momentum. Activity has softened, hiring has cooled, and consumer confidence remains subdued. Business surveys showed slowing demand – the UK PMI output index reported a second month of contraction – consistent with a pullback in GDP growth from the current strong 0.7% 3m-o-3m rate in April. The services and construction sectors are especially downbeat. New business for services firms has been declining for four months, while construction activity has been falling since January 2025. Both are victims of higher costs and weak sentiment. Meanwhile, the rebound in manufacturing has continued, despite supply chain disruption and global volatility (Chart 1). Employment growth is subdued, with firms preferring temporary placements against a backdrop of higher labour costs and activity uncertainty. Despite that, starting salaries are rising (Chart 2), as firms looked to attract experienced, skilled staff. This is consistent with a two-tier labour market, whereby weak demand in certain sectors, and higher costs, are disproportionately impacting younger workers, while a degree of tightness remains for higher skilled, experienced roles. Indeed, despite more applicants per job role, a lack of qualified applicants is the top reason for recruitment difficulties, according to an ONS survey of businesses. A more segmented labour market poses a risk to wage growth, inflation pressures, and for the Bank of England (BoE) in setting interest rates. A fragile outlook and renewed policy uncertainty From here, easing Middle East tensions and the reopening of the Strait of Hormuz could all help lead to a pick-up in sentiment. Warm weather, plenty of sports, and a willingness from households to lower their savings rate – as seen in Q1 – could further contribute to some resilience in the economy over the summer. Meanwhile, corporates and households show financial resilience – the Bank of England’s (BoE) Financial Stability Report showed that overall corporate and household indebtedness, and debt vulnerability, remains low. That said, the outlook is fragile. Sustained peace in the Middle East is not a certainty, tailwinds to businesses and households continue to drag, and inflation is set to rise over the coming months, despite lower oil prices. Financial conditions are more restrictive than a few months ago, housing demand has fallen back with mortgage approvals down 11% y-o-y in May, and corporate credit growth momentum has slowed. Business investment growth in Q1 appeared robust but was concentrated in transport equipment. And renewed policy uncertainty is unlikely to be helping. Dare to dream for the UK currency under new leadership? In the near term, the UK’s new Prime Minister is unlikely to rewrite the playbook for the pound (GBP), and markets may treat their opening weeks as a live test of the UK’s ‘investability’. While the GBP can live with ambition, it struggles with a combination of unfunded promises and policy surprises. However, HSBC Global Investment Research FX analysts set out three scenarios for how the GBP may respond to the new government further ahead but conclude that to see a meaningful upside to the GBP, sentiment needs to improve, and private capital needs to be mobilised to long-term use, while policy certainty and fiscal credibility will also be key. Indeed, the Office for Budget Responsibility (OBR) has warned in its latest long-run fiscal sustainability report that policy changes should address long-run challenges as well as short-term needs. So, while an agenda of ‘good’ growth is welcomed, the challenges that have plagued the UK in recent years remain, and financial markets will likely be cautious. They have heard grand plans before but would not trade on ideas alone – proof is in the growth-flavoured pudding. https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/pockets-of-resilience/

2026-07-08 12:01

Key takeaways The Middle East conflict is increasingly feeding through to inflation, particularly energy related components… …leading to weaker business and consumer survey data, but hard data are still holding up for now. We expect rate hikes in the eurozone, UK and Japan while the US is likely to be in wait-and-see mode. Markets may be finding more reason for optimism on the back of the Memorandum of Understanding (MoU) signed between the US and Iran on 17 June, with oil prices falling back significantly and equity markets picking up again, but the economic fallout will depend on the speed of reopening of the Strait of Hormuz. Picking up steam Some parts of the global growth story remain on a tear, largely surrounding AI. Asian exporters continue to see a strong lift from the build out of datacentres in the US and elsewhere, although the pull back in Korean industrial production and Taiwan export orders in May suggests that the broader pace of this growth might slow a touch.Nevertheless, they still are growing at a handsome pace. Mainland China is seeing a similar export boost, but domestic activity data are faltering somewhat. The broad suite of US data continues to perform well. The labour market, having wobbled at the start of the year, appears to have stabilised, while the American consumer has kept spending – and this may be boosted by football-related spending in June and July. Source: BEA, Latest data: 2026 Q1 Source: USCB Latest data: May 2026 Europe data mixed Things aren’t quite as bright in Europe, where the activity data appear to be feeling the squeeze from the jump in energy prices. Survey data have edged up on the back of the drop in oil prices, but we expect growth to slow through Q3. While some consumer services may see a boost from the World Cup and hot-weather related spend, the matches being late at night in European time zones may dampen the uplift. Source: S&P Global, Latest data: June 2026 Source: Eurostat, DG ECFIN, GfK, Latest data: June 2026 Inflation pressures diverging The inflation story is now complicated due to multiple competing forces. The oil price rise through May has lifted inflation, but some of these effects will now fade out on a m-o-m basis over the coming months. However, food inflation is expected to pick up gradually, due to the impact of El Niño adding to conflict-induced cost pressures in food supply chains. PMI data suggest much of the rise in input costs hasn’t been passed on yet – the question is whether firms will now need to at all. Trade developments Elsewhere, the US administration has decided not to renew the United States-Mexico-Canada Agreement (USMCA) agreement between the three North American trading partners for now, though the deal remains valid through 2036 at least. The US Treasury refunded USD22bn in tariffs in May, resulting in no net customs duties collected that month. Meanwhile, recent talks between the EU and China were constructive, with both parties agreeing to work to tackle bilateral trade ahead of their next ministerial meeting in October. Growth forecasts We recently kept our global growth forecasts steady at 2.5% for this year and 2.7% for 2027, although that masks sizeable revisions to some economies. While there are no absolute winners from the conflict-driven global supply shock, there are relative winners and losers. The most notable upgrade to our 2027 forecast is to the US while the biggest downgrades are India and Brazil, reflecting a weaker carryover from H2 2026 when lagged effects of the energy shock and an anticipated impact from El Niño are set to weigh on the growth outlook. Note: *India data is calendar year forecast here for comparability. Previous forecasts are shown in parenthesis and are from the Macro Monthly dated 9 April 2026. Green indicates an upward revision, red indicates a downward revision. Source: Bloomberg, HSBC Economics Source: Bloomberg, HSBC. ⬆ Positive surprise – actual is higher than consensus, ⬇ Negative surprise – actual is lower than consensus, ➡ Actual is in line with consensus Source: LSEG Eikon, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/macro-monthly/price-shocks-easing/