USD and JPY to benefit from increased volatility – HSBC

Economists at HSBC consider various possible scenarios that could play out and what these may mean for G10 currencies. A U-shaped recovery is the most likely case.

Key quotes

“L-shape: The global economy fails to rebound even after the easing of COVID-19 containment measures. FX is driven by the relative health of external positions. Winners: JPY, CHF, Gold, Losers: AUD, NZD, GBP.”

“U-shape: The upswing fails to arrive immediately. FX is driven by the relative health of government finances as markets look for policy to deliver the upswing. Winners: USD, JPY, AUD, NZD, Losers: EUR, CAD, GBP.”

“V-shape: A healthy and reasonable swift rebound in growth. ‘Risk on-Risk off' is still dominant, as previous FX losers become the winners. Winners: AUD, NZD, CAD, Losers: Gold, USD, JPY, CHF.”

“！-shape: An extended downturn in growth, perhaps prompted by a second wave of containment measures. A ‘Risk-off' mood would ensue. Winners: Gold, JPY, USD, Losers: CAD, AUD, NZD.”