The British pound to euro exchange rate has finally seen some positive buying support but remains very much aligned with the current 2016 trend, whilst sterling also faces renewed pressure against the US dollar after last week's positive US employment news. We examine the latest exchange rate (near, medium and long-term) forecasts for the key currencies from leading financial institutions and banks.
- Yellen's dovish stance leads to a significant US dollar sell-off versus the majors.
- The British pound (GBP) exchange rate complex proves to be a worst performer after 'record UK current account deficit'
Foreign exchange markets witnessed another volatile week after several key global events, including FED chair Yellen's dovish speech, rocked the US dollar against the major currencies such as the euro and the pound sterling.
We examine the key analysis and predictions from the leading exchange rate forecasters and include the key events to watch for each currency.
Other Foreign Exchange News
For your reference here are the latest FX rates:
On Thursday the Euro to British Pound exchange rate (EUR/GBP) converts at 0.855
The live inter-bank GBP-EUR spot rate is quoted as 1.169 today.
The pound conversion rate (against us dollar) is quoted at 1.253 USD/GBP.
Today finds the pound to australian dollar spot exchange rate priced at 1.919.
Today finds the pound to canadian dollar spot exchange rate priced at 1.72.
The pound conversion rate (against new zealand dollar) is quoted at 2.115 NZD/GBP.
Please note: the FX rates above, updated 2nd May 2024, will have a commission applied by your typical high street bank. Currency brokers specialise in these type of foreign currency transactions and can save you up to 5% on international payments compared to the banks.
Euro to Dollar Exchange Rate Forecast
The euro to dollar exchange rate hit fresh 5-month best conversion levels on Friday morning, before the USD trimmed losses after the release of the US employment data.
So where do leading exchange rate forecasts see the EUR/USD in the near-term?
Danske Bank note that the current EUR/USD strength is demonstrating that concerns related to monetary policy divergence are fading:
"Yesterday EUR/USD broke through the 1.14 barrier for the first time since October last year. The move is very notable amid solid US data and shows that even a strong non-farm and/or ISM manufacturing release today is unlikely to trigger a sustained USD rally as previously seen. In our view the move higher in EUR/USD illustrates that the cross is increasingly giving into fading policy divergence in terms of ECB versus Fed; partly a result of the Fed now to a much larger extent internalising external developments into its reaction function."
However, Danske Bank warn "that time is not yet ripe for a move towards the 1.18 level at which we project the cross in 12M:"
- (i) our short-term models suggest USD crosses are in general oversold
- (ii) USD positioning is now close to neutral (i.e. some scope for longs to be added again)
- (iii) clearly room for more hikes to be priced on Fed. Also, EUR/USD seems to have gone somewhat ahead of the drop in EU inflation expectations, which could fuel ECB easing expectations yet again."
In summary they "maintain our view that EUR/USD will remain range bound in the short term, albeit in a little higher range than anticipated some weeks ago."
Scotiabank's analysis of the EUR vs USD forex trading sentiment shows that the USD long trading positions have reduced 5 straight weeks in a row:
"USD bulls continue to pull in their horns. The latest snapshot of positioning in the speculative FX community via the CFTC data for the week through March 29th shows the aggregate bull bet on the USD dropping for a fifth consecutive week (to its smallest since 2014)."
"Comments from Fed Chair Yellen Tuesday may have contributed to the continued reduction in bullish USD positioning this week."
Lloyds Bank economists note that the positive US data on Friday only partly corrected the huge USD sell-off earlier in the week:
"...the US dollar declined sharply against other major currencies this week, in particular touching above 1.14 versus the euro, a new low for the dollar so far during 2016."
"The sell-off was only partly offset by today’s solid March US employ ment report that indicated that the US economy is in good enough shape to weather higher interest rates."
Key Euro (EUR) Exchange Rates Impacting Events To Watch
Monday sees several EUR-impacting events such as the Spanish Unemployment Change (source), Sentix Investor Confidence (source), Euro-area Unemployment Rate and PPI (source).
Tuesday's key events include the German Factory Orders m/m (source), German and Spanish Services PMIs (source) and the EUR Retail Sales.
Wednesday brings us the German Industrial Production and Thursday the French Trade Balance, and more importantly the ECB Monetary Policy Meeting Accounts and ECB President Draghi Speaks (source).
Pound to Dollar Exchange Rate Forecast
The pound to dollar exchange rate found some relief this week after FED chair Yellen's dovish tone surprised FX markets.
Lloyds analysts, in a briefing to clients, gace their medium to long-term forecasts for the GBP/USD:
"Medium-term we expect the market to trade a range between 1.3850 - 1.35 support and 1.45 - 1.48 resistance."
"Long-term the trend remains down, with the greater risk still for a test below 1.35 key support (which has held since 1985) . 1,28 is seen as key support be low."
"A move back through 1.48/1.50 is needed to alleviate this underlying bear bias."
David Song, Currency Analyst at DailyFX, notes the pound-dollar rate pairing could consolidate in the near-term outlook:
"With second-tier data on tap for the week ahead, the British Pound may continue to consolidate ahead of the next Bank of England (BoE) interest-rate decision on April 14, but fresh rhetoric from Fed officials may generate a near-term rebound in GBP/USD as Chair Janet Yellen endorses a more dovish outlook for monetary policy."
Citibank's outlook remains focused on the Brexit pressures that face the British pound rate today:
"UK inflation may remain at 0.3% YoY in February, and a recent fall in GBP may support inflation to rise above 1% by year-end. However, UK economy and politics may be dampened by Brexit. Brexit risk may continue to restrain GBP."
Scotiabank highlight the key support for GBP/USD and note that a break of this level could see the pair plunging towards 1.35:
"The pound was unable to take advantage of the softer USD trend this week."
"Cable peaked near 1.4450 mid-week and short-term price action looks heavy on the charts."
"We see initial support at 1.4250 (40-day MA) and major support at 1.4050 in the next 1-2 weeks. A push below here would suggest strongly that Cable is heading towards 1.35/1.36."
Key GBP/USD, EUR/USD, Related Events to Watch This Week
Monday's key USD-related events in the forex calendar include Monday's US Factory Orders m/m (source), the low-impacting Labor Market Conditions Index and most notably, the UK's Contruction PMI (source).
Tuesday brings us the UK Services PMI and FPC Meeting Minutes (source).
Wednesday's events include the USD-impacting US Crude Oil Inventories (source), FOMC Member Mester Speaks (source) and the FOMC Meeting Minutes (source).
Thursday proves to quite influential, with the Halifax HPI, the GBP 10-y Bond Auction and after last week's hugely impacting speech from Fed Chair Yellen, all eyes will be on her on this day as she delivers another speech.
Friday brings us another speech from FOMC Member George, and high-impacting GBP event, the Manufacturing Production m/m.
Canadian Dollar Exchange Rate Forecast
The Canadian dollar exchange rates have seen a strong rally since the start of 2016, as Scotiabank forecasters note in their briefing to clients this week:
"The rally in the CAD since the January low continues to force re-positioning among investors. Accounts boosted gross CAD longs modestly and slashed gross CAD shorts to more than halve the net bet against the CAD back to USD678mn this week."
"The fact that there is still a modest outstanding short position in the market after a near 10 cent (US) rally in the CAD suggests that position adjustment may provide some further lift for the CAD."
Their near-term outlook for the USD/CAD exchange rate stays bearish:
"both trend and momentum indicators are decidedly bearish, however the extent of their bias has moderated. We note the positive divergence that carried on through much of the past month, with momentum failing to confirm the fresh lows in spot (middle chart)."
"We also highlight USDCAD’s formation of a hammer candle on Thursday - typically considered to represent a bullish reversal signal."
"We remain USDCAD bearish in the absence of a break above the short-term MA’s with the 9 day MA at 1.3115 and the 21 day MA at 1.3174."
Citibank forecasts this week see "USD/CAD may range trade between 1.3039-1.3446, with upside bias."
In their note to clients, Citbank warn of a potential downside to the Canadian dollar should the BoC slash interest rates:
"Canada announced its 2016 budget including expansion of infrastructure and housing investment. Although measures may increase yearly economic growth to 0.25-0.5%, the BoC may cut rates in 4Q due to external economy and commodity price volatility, which may restrain CAD."
Key GBP/CAD, EUR/CAD, USD/CAD Related Events to Watch This Week
Tuesday 5th April 2016 delivers the Canadian Trade Balance (source) and Gov Council Member Wilkins Speaks (source).
Wednesday brings us the CAD-related Ivey PMI, Thursday the Building Permits, but Friday 8th April sees the most notable Canadian dollar events.
The Canadian Employment Change and Unemployment Rate should deliver some volatility for the Canadian dollar crosses.
Australian Dollar and New Zealand Dollar Outlook
Citibank's analysis for the Australian dollar exchange rate complex see a gradual rise in the AUD/USD:
"RBA's hawkish policy stance may reflect the RBA does not tend to rate cuts. We expect AUD may keep its yield advantage as Australian rate cut cycle may have ended."
"According to interest rate futures market (Chart), the probability of a rate cut in April dropped from 50% in February to 11% while the probability of a rate cut in December also fell from 80% in early March to 57%."
"In addition, AUD may keep its mild uptrend as the RBA may not talk down AUD actively. For the coming 0-3 months, AUD/USD may test higher to 0.78."
ABN AMRO economists have highlighted the current commodity currency rally, including the Aussie and NZ dollars:
"Currencies of commodity exporting countries (NZD, CAD, NOK, ZAR, MXN, and BRL) have outperformed, especially if they have attractive yields."
"The fact that the weaker US dollar has not pushed commodity prices to new highs only dampened the upside in these currencies somewhat."
"Going forward we expect the sentiment towards these currencies to continue to improve resulting in a relatively good performance."
In relation to the RBA interest rate speculation and the Aussie dollar exchange rate near-term forecast, ABN AMRO give their analysis:
"The Reserve Bank of Australia (RBA) is widely expected to keep the Official Cash Rate (OCR) unchanged at 2% on 5 April."
"We also doubt that the RBA will strike a dovish tone on the Australian dollar (AUD) given that gains in the exchange rate are not materially different from the rise in iron ore prices, Australia’s key commodity export."
"The current carry trade theme is likely to continue support the AUD and New Zealand dollar (NZD) higher towards 0.7850 and 0.7200, respectively in the coming weeks."
The analysts at Citibank deliver their New Zealand dollar exchange rate forecast for the near-term:
"Strong NZ trade data reflect export is not affected by China's economic slowdown and falling milk prices. Strong tourism and related sectors may support 2016 economic growth to reach 2.7%."
"Thus, the RBNZ may defer it rate hike to June, which may support NZD."