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Foreign exchange strategists at United Overseas Bank (UOB) - the Singapore-based banking giant - have updated clients with their latest foreign exchange forecast tables and insights for they key currencies over the next one year period.
Euro: Staying Positive
The past quarter has been decidedly volatile for the Euro, particularly against the US Dollar. At the start of the quarter, the escalation of the political crisis in Italy triggered heavy selling in the EUR/USD and forced it back down from its high of 1.24 in April to as low as 1.1550 in late May.
"After several rounds of intense negotiations, Italy finally managed to form a government and the new Economy Minister Giovanni Tria reiterated that the new coalition government has no plans to leave the Eurozone and will focus on reducing debt level.
In addition, while ECB acknowledged in its 17 June meeting the plan to end QE soon, they disappointed by pushing out further subsequent plans to raise rates As a result, EUR/USD stayed soft near 1.16. Overall, we maintain our positive outlook for EUR/USD as ECB is still on the path of policy normalization despite a longer timeline."
UOB forecast EUR/USD at 1.20 in 3Q18, 1.21 in 4Q18, 1.22 in 1Q19 and 1.23 in 2Q19. Prevailing spot reference rate is 1.16.
Concerning the EUR/GBP exchange, the outlook sees EUR/GBP at 0.9179 at year-end, 0.93 by the end of the first-quarter 2019 and 0.93 by mid-year 2019.
This gives a GBP to EUR exchange rate of 1.09 and 1.0750 respectively for the above values.
US Dollar: Upside Risks
"Rising US rates have contributed to a firmer USD trend.
"We maintain our 2019 rate hike expectation at three 25bps hikes which now implies that we expect the Fed to exceed their long run FFTR at 3.0% by mid-2019."
British Pound: Maintaining Negative Outlook
"Yet another quarter has passed and there is still no clarity on Brexit terms between Britain and the EU.
"In the meantime, the latest about face by the BoE at its May meeting dealt a heavy blow to GBP bulls. As mentioned above, while we maintain the view of a delayed rate hike in August by the BoE, that is contingent on growth bouncing back and Brexit negotiations staying positive. Furthermore, faced with various uncertainties, GBP is unlikely to benefit much from this sole rate hike.
UOB maintain a negative outlook for GBP/USD and see the pair drifting lower towards 1.30. Overall, they forecast GBP/USD at 1.33 in 3Q18, 1.32 in 4Q18, 1.31 in 1Q19 and 1.30 in 2Q19. Prevailing spot reference is 1.32.
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Australian Dollar: Modest Strength
"Prices of key commodities remain constructive.
"Consequently, Australia’s terms of trade has improved moderately following a brief dip towards the end of last year.
"We believe the AUD will continue to draw support from positive commodities prices as it waits out the RBA. However, it is also important to acknowledge that that strong AUD upside above 0.80 is capped by on-going US Federal Reserve rate hikes. After all, since the previous FED rate hike, at 1.75%-2.00% Federal Funds Rate is now higher than the RBA’s OCR at 1.50%.
"Until the RBA decides to hike, this policy rate differential will only widen further, to the detriment of the AUD."
UOB see modest AUD strength ahead, to 0.77 in 3Q18, 0.78 in 4Q18, 0.79 in 1Q19 and 0.80 in 2Q19.
Singapore Dollar: Mild Weakness
"We see further mild SGD weakness ahead. It is worth noting that given the mild appreciation trend of the S$NEER policy band, any SGD weakness will be less pronounced compared to the rest of the Asian currency block."
UOB see a slow climb in USD/SGD towards 1.36, they forecast USD/SGD at 1.34 in 3Q18, 1.35 in 4Q18 and 1Q19 and 1.36 in 2Q18.