2021, 2022 and 2023 (November update)

  • Well Fargo Investment Bank 2021-2022-2023 Exchange Rate Forecast – updated November 2021.
  • Tightening of the Fed to support the dollar with the risk that more aggressive hikes are needed.
  • The euro will be undermined by the accommodating position of the ECB.
  • EUR / USD is expected to weaken from 1.1300 now to 1.0700 low with downside risks.
  • The pound will be affected by weak fundamentals as the BoE’s rate hike is expected to miss market prices.
  • GBP / USD is expected to drop below 1.3000 next year.
  • Commodity currencies should not match the performance of the US dollar with net losses.

Fed Tightening to Boost US Dollar (USD) Gains

Wells Fargo is bullish on the dollar over the next year; “We expect an extended period of US dollar strength to persist for most, if not all, of 2022.”

bannerWells Fargo expects supply constraints to gradually ease over 2022, but underlying pressures are likely to continue and the bank notes that inflation numbers have surprised on the upside.

He notes; “If this trend continues and inflationary pressures only gradually ease over time, the Fed could cut its bond purchases even faster than expected and start raising interest rates even earlier than expected. second half of next year – factors that should be positive for the US dollar. “

Wells Fargo expects the Eurozone to maintain loose monetary policy throughout the forecast period, especially given recent rhetoric.

“We expect the European Central Bank to reduce its overall bond purchases only very gradually and to fall far behind many other G10 central banks in raising key interest rates, both of which should be expected. contribute to the weakening of the euro for much of 2022. “

The bank predicts that the euro to dollar exchange rate (EUR / USD) will fall below 1.10 in early 2022 and weaken to a low of 1.0700 during the year, the lowest level since March 2020.

This is one of the lower forecasts of the major investment banks, although it considers the net risk to be even greater losses.

“We expect a period of prolonged euro weakness; however, the risks point to a further downside than we currently anticipate. “

Despite the current strength, the bank expects the Swiss franc to gradually lose ground, with the SNB maintaining a very accommodative monetary policy. He adds ; “We still see potential for the Swiss franc to ease in the medium term.”

The yen is also expected to lose ground against the yen amid rising US yields, with the dollar’s exchange rate against the yen (USD / JPY) strengthening to 122 by the first quarter of 2023.

The British pound (GBP) to lose against the dollar

Wels Fargo expects yields to inevitably have a big impact on the pound. Although the bank expects rates to be hiked in December, the pound is still expected to lose against the US dollar. Above all, he considers the current market prices to be realistic.

“With the economic recovery remaining somewhat uneven, we only see a gradual pace of Bank of England rate hikes over time, similar to the Fed’s pace, but well below the pace currently anticipated by stakeholders of the market.

He expects the base rate to be 0.75% on a 12-month view, compared to market expectations of around 1.15%, the pound-to-dollar (GBP / USD) exchange rate. trading below 1.30 next year.

The bank also notes that there are other downside risks associated with the pound sterling, including potential coronavirus developments.

“In this more pessimistic scenario, the pound could fall to a range of $ 1.2300 to $ 1.2500, with only a very limited recovery seen over the longer term.”

Commodity currencies fail to rise

Wells Fargo expects commodity currencies to tend to lose against the US dollar.

The bank expects the Australian dollar to lose due to a cautious stance by the central bank.

“The pressures on wages and prices are only increasing very gradually, which means the Reserve Bank of Australia is likely to keep rates stable for the foreseeable future.

The Australian dollar to US dollar exchange rate (AUD / USD) is expected to be less than 0.70 in 2022.

Although the Reserve Bank of New Zealand is expected to raise rates, the bank does not expect the pace to match market expectations.

“We expect the Reserve Bank of New Zealand to continue to tighten policy in November and beyond, albeit less aggressively than what is currently valued in the markets, which should see the currency neo Zealand weaken against the US dollar. “

He paints a similar picture for the Canadian dollar, with the Bank of Canada’s rate hikes also struggling to match market expectations.

However, he expects the currency to hold up with some rally in the Canadian dollar over the medium term.

Wells Fargo currency forecast table covering the period 2021-2022.

Pair place Q4 2021 Q1 2022 Q2 2022 Q4 2022 Q1 2023
EUR / USD 1.13 1.11 1.09 1.08 1.07 1.08
USD / JPY 114 114 116 118 120 122
GBP / USD 1.34 1.33 1.31 1.29 1.28 1.29
EUR / GBP 0.84 0.84 0.83 0.84 0.84 0.84
USD / CHF 0.93 0.95 0.96 0.98 0.99 0.98
AUD / USD 0.72 0.71 0.69 0.68 0.67 0.68
NZD / USD 0.70 0.69 0.67 0.66 0.65 0.66
USD / CAD 1.26 1.27 1.28 1.29 1.27 1.25
EUR / NOK 10.05 10:00 a.m. 10:00 a.m. 9.90 9.80 9.60
EUR / SEK 10.08 10.10 10.10 10.05 9.95 9.90
USD / CNY 6.39 6.40 6.42 6.44 6.42 6.38

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