Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 92 Investments Currencies Like sterling, the euro faces multiple headwinds. The single currency zone also faces an The British pound has recovered somewhat from unfavorable mix of lower growth, high inflation the intense selling that greeted former PM Liz and rising rates in the months ahead. The ECB Truss’s unfunded tax cut proposals in September is expected to hike rates to 2.5% amid fears of 2022. For sterling to make sustained gains, a severe winter’s effect on energy consumption, though, the UK needs to present a sustainable China’s delayed recovery and likely recession in long-term growth strategy. The outlook for 2023 Europe. These forces suggest the euro staying is bleak, with recession likely, the developed weaker for longer in a $1.09-$1.14 average range. world’s worst external deficit and trade with the The caveat is the timing of a turn in the US EU hampered by Brexit. dollar. Should the Fed turn more dovish in its The BoE has an equally difficult task of trying to monetary policy, the US dollar could weaken lower a high inflation rate without deepening the across the board, including against the euro UK recession and home price declines. Against and sterling. The timing of such a move remains this backdrop, we see sterling vulnerable to difficult to forecast, however. further bouts of weakness against the US dollar. We expect an average range of $1.23-$1.28 until the longer term picture shows improvement.