FX forecasts and associated rankings are published on behalf of Monex Europe and Monex Canada.
Monex’s FX forecasts have built on the momentum of Q4’s performance in Bloomberg’s poll to rank second within the G10 and 13 Majors categories in Q1, out of 50 and 48 eligible forecasters respectively.
Monex’s improved forecast accuracy came at a time when the broad US dollar defied expectations of a substantial structural decline as reflationary dynamics remained prominent.
Our more conservative view on the dollar’s decline paid dividends in this environment and resulted in a top 10 ranking for both USDJPY and GBPUSD, while we also maintained a strong ranking in AUDUSD and EURCHF from the previous quarter. As the dollar remains elevated due to strong fiscal support and a robust vaccination programme, we continue to envisage mild depreciation in the dollar over the coming quarters. However, given the dollar’s haven attributes and the fluid global economic environment, the path of the dollar’s decline is unlikely to be smooth.
Following on from our strong Q4 2020 results, our solid EURCHF and AUDUSD rankings are compounded by top 10 individual performances in GBPUSD and USDJPY in the G10 space.
For sterling, our expectation of a strong rally in Q1 largely played out as the pound exhibited a positive dividend from a successful domestic vaccination programme. However, while GBPUSD hit highs of 1.4236 in Q1, it struggled to hold onto such levels as external risks to the economic outlook began to materialise. Sterling, therefore, failed to close out the quarter at our 1.41 target, but the rally from the 1.36 level at the beginning of the quarter was notable. We continue to envisage further GBPUSD appreciation over the coming quarters as the UK economy begins to reopen as per the government’s roadmap. Incoming data, largely pertaining to consumer spending patterns, will then dictate how far the sterling rally can go.
With the yen, Monex’s decision to alter the Q1 forecast mid-way through the quarter to 108 proved fruitful as widening yield spreads pushed the USDJPY rate ever higher.
Looking forward, our latest JPY outlook outlines our view of sustained yen weakness, with risks to our 108 forecast in the short-term tilted towards further yen depreciation. However, in the second half of the year, as Japan’s economic recovery catches up with other DM economies, we envisage the yen to find a firmer footing to recoup some of the losses sustained in Q1.
Author: Simon Harvey, Senior FX Market Analyst