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Citi Exchange Rate Forecasts at Mid-Year

Citibank exchange rate forecasts

Image © BruceG1001, reproduced under CC licensing

Citibank, the world's largest foreign exchange dealer, has updated its foreign exchange forecasts as we move into the mid-year period.

British Pound Outlook

Pound

"Fundamentally GBP remains cheap with it’s real effective exchange rate close to all time lows. Despite the fact that it’s difficult to envisage any UK-EU agreement at this juncture, it’s clear to see that GBP will reprice higher should one occur."

 

Euro Outlook

Euro view

"With the ECB now pre-committed on hold almost regardless of incoming data from here until “at least through the summer”, and with the Fed hawkish, EUR may be pressured in the short term. US twin deficits and ECB tapering are likely to reduce inflows into the US."

 

US Dollar Outlook

Dollar

In the medium term, Citi say the USD downtrend may resume (more details on this view in this article).

This is based on:

1) "USD positioning is much cleaner than at the start of the year suggesting that the rally in the $ may begin to abate."

2) "With increased US bond supply upcoming, yields likely rise further as tapered LSAPs in the EA and Japan mean less funding is likely to be forthcoming for larger US fiscal deficits."

3) "Overall, our Dollar G10 forecasts show around 3% Dollar downside over 6-12m and 15% downside in the long run."

 

Australian Dollar View

Aussie

"Domestic data has recently been surprising to the upside. We expect economic growth to pick up close to trend. The RBA may start to hike rates around mid 2019. Markets may not have fully priced in possible RBA rate hikes. If expectations resume, AUD may find support."

 

Canadian Dollar View

Canadian Dollar

"In the medium term, we still expect CAD to appreciate, given the pair remains significantly below the level implied by fundamental drivers and the broad $ bear market should eventually kick in. Besides, Citi analysts expect the BoC to hike in July, which may support the CAD."

Citi forecasts

Graphic courtesy of Citibank

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