This month's roundup

 
 

EUR / GBP

 

Our Euro/Sterling forecast has remained at 85p for a number of months and the pair has traded close to the 85p level for much of that time. Indeed volatility in Euro/Sterling has dropped with some of the smallest weekly ranges in the last decade occurring in recent weeks. Looking ahead, a lot of the good news has been priced into the UK however some small signs of disappointing consumer spending behaviour paired with ever increasing supply chain issues and the return of Brexit deadlines all have the potential to put renewed pressure on the currency. While a deadline for a Scottish Independence vote may make the headlines, this is unlikely to be a major driver in the short-term given the requirement for Westminster to approve any referendum. Nevertheless the outlook for Sterling is now more uncertain than it has been in recent months and therefore we are increasing our 3mth forecast to 86p.

 
 

EUR / USD

 

EUR/USD continues to trade around our 3 month forecast of 1.1850 and has done for the best part of three months; this has been reflected in volatility which is back to pre-pandemic levels while currently Euro/Dollar is in its tightest yearly trading range since the inception of the single currency. Despite markets increasing their expectations for a policy shift, the ECB only adjusted their PEPP bond purchases to a “moderately lower pace”, and currency markets will be more focused on the FOMC meeting later this month where the Federal Reserve are widely expected to begin the taper of asset purchases this year. Despite this, Chair Powell continues to emphasise that the criteria for raising rates is significant higher than that for reducing asset purchases. While the central banks continue to maintain their current policy stance we will leave our Euro/Dollar forecast unchanged at 1.1850.

 
 

GBP / USD

 

While the US Federal Reserve remain the main driver for markets in the short-term, currency market’s relative central bank expectations are likely to become a driving factor later in the year and into next year. For now the focus will be on the Federal Reserve meeting in September however although Chair Powell highlighted that “substantial further progress” has been met on the inflation front, markets expect that it will take a while longer on the employment outlook. The other area of note is new Bank of England Chief Economist Huw Pill who will take over from Andy Haldane and currency markets will be watching for any hawkish or dovish signals. As outlined in our Euro/Sterling outlook, there is a lot of good news in the price of Sterling – which remains the best performing currency in G10 so far this year – and therefore we are moderately lowering our 3mth forecast from 1.39 to 1.38.

Currency forecasts

Currency

 

Current

 

Last 3 Month Forecast

 

New 3 Month Forecast

EURGBP

0.8535

0.8500

0.8600

EURUSD

1.1845

1.1850

1.1850

GBPUSD

1.3875

1.3900

1.3800

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