Consensus Forecasts for the British Pound, Euro and Dollar at the Start of July

exchange rate analysis

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At the start of July - and the second half of 2018 - we look at the consensus forecasts for the Pound, Euro and US Dollar for the next three months, and the next 12 months.

The data is provided by Consensus Economics who are the world's leading international economic survey organisation, polling more than 700 economists each month to obtain their forecasts and views.

Julius Baer - the Swiss-based investment bank - have meanwhile given us their fundamental viewpoints on each currency pointing out the factors that will pose both opportunities for an advance, and risks which could deliver weakness if realised.

The calls comes at a time of ongoing US Dollar strength which has its roots in the investor nerves concerning slowing global growth thanks to the trade policies of President Donald Trump. But that's not all, higher bond yields in the US, repatriation flows and an economy that is outperforming its peers are all seen contributing to Dollar strength.

The Pound and Euro have meanwhile been prone to a slowing in economic activity at the start of the year and bouts of political uncertainty. How politics play out over coming weeks could well be key for these two currencies.

The Dollar: Can the Dominance Continue?

"Rate and yield advantage justify a stronger USD and should persist given a solid US economic backdrop. Sentiment is improving, creating additional support for the US Dollar," say Julius Baer.

However, it is argued ill-timed expansionary fiscal policy is a longer-term headwind for the currency as the global USD supply will rise via a larger budget and external deficit.

Furthermore it is said by the Swiss bank that the USD remains fundamentally overvalued, a headwind for the longer-term outlook.

Julius Baer on the Dollar's Opportunities:

"The USD is a structural safe- haven currency."

"Prospect of additional US Federal Reserve (Fed) rate hikes."

"Positive interest-rate differential versus EUR."

And, on the Dollar's Risks:

"Escalating trade quarrels could prevent the Fed from hiking rates."

"Current-account balance, basic balance and trade balance are negative."

"A return of risk appetite would promote investments outside the USD."

Consensus forecasts for EUR/USD: 1.19 by October, 1.22 by July 2019.

Consensus forecasts for GBP/USD: 1.35 by October, 1.39 by July 2019.


The Euro: Going Higher

Despite the Euro's fall against the Dollar, "the level implied by the yield differential and other short-term drivers of the currency suggest that the Euro has further downside," warn Julius Baer.

The support of yields cannot be counted on largely thanks to the lack of commitment to hike interest rates at least through summer 2019 at the European Central Bank.

"Low inflation means that EUR purchasing power remains very solid. With a solid balance-of-payments situation, this is a major longer-term tailwind for the Euro," add Julius Baer.

Julius Baer on the Euro's Opportunities:

"Under-owned by international investors."

"The trade surplus ensures money inflows."

"The ECB’s commitment to price stability protects the value of the euro."

And, on the Euro's Risks:

"Efforts by the ECB to weaken the currency.

"Return of political instability with potential anti- establishment government in Italy.

"Very attractive as a financing currency.

Consensus forecasts for EUR/USD: 1.19 by October, 1.22 by July 2019.

Consensus forecasts for EUR/GBP: 0.88 by October, 0.88 by July 2019.


The British Pound:

Brexit is back to the fore as a driver for Sterling at the mid-year point having been ignored by markets for much of the year. Markets simply could not ignore the Brexit factor forever owing to the impending October deadline by which a deal must be struck.

"Although the transition delays a change in the trade regime, uncertainties are slowing economic momentum, i.e. investments," say Julius Baer.

The BoE is meanwhile said to sound "overly optimistic in hinting at a further rate hike soon" - something that if carried out could offer Sterling some support.

Valuation of the Pound vs. the Euro

"We hold a neutral GBP stance as the upside of any eventual rate hike will be limited and the downside of Brexit's full impact (loss of EU single-market passport) will unfold beyond our 12-month forecast," say Julius Baer.

Julius Baer on Sterling's Opportunities:

"Signs that the EU single-market access can be preserved (‘soft Brexit’) from 2021 onwards, i.e. U-turn in the UK's Brexit stance or an accommodating EU.

"Brexit transition and robust economy to keep inflation pressure alive and prompt more BoE rate hikes.

Pound to Dollar valuations

And, on Sterling's Risks:

"Signs that the UK's or the EU's Brexit stance continues to lead to a ‘hard Brexit’ (loss of EU single-market passport)."

"Further weakness of growth to disappoint rate expectations."

"A reversal of fiscal austerity to compensate for Brexit, erosion of past fiscal discipline."

Consensus forecasts for the Pound-to-Euro exchange rate: 1.1363 by October, 1.1363 by July 2019.

Consensus forecasts for the Pound-to-Dollar exchange rate: 1.35 by October, 1.39 by July 2019.

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