Next Week’s FX Forecast & Events May 04, 2020

USD FX forecast:  The dollar has scope for limited near-term gains as market confidence in the global outlook dips again, but medium-term weakness remains likely. 

EUR FX forecast: The Euro is unlikely to make further ground in the very short term as confidence in the Euro-zone outlook continues to weaken. 

GBP FX forecast: Sterling is liable to drift weaker amid more fragile global risk conditions and unease over the ability to ease lockdown measures. 

JPY FX forecast: The yen is likely to remain resilient in the short term, especially with a lack of confidence in other major currencies. 

 

Trade and political developments important for longer-term FX forecasts

There have been fresh tensions between The US Administration and China with President Trump threatening to impose renewed tariffs on China in retaliation for the coronavirus outbreak.

Trump and the Administration will be dominated by political factors ahead of the scheduled November Presidential election, increasing the risk of populist actions against China.

Equity markets will, however, tend to weaken on fears over trade wars and this may restrain the aggressive rhetoric from Trump given his fears over Wall Street losses. 

Coronavirus exit strategies again in focus

Global exit strategies by Europe and US will again be an important focus during the week. European countries are continuing to ease lockdown restrictions very slightly and this process will continue over the next few weeks.

Countries which are able to relax measures at a faster pace will tend to be rewards by currency markets. Positive developments in treatment and vaccine development will tend to support risk appetite.

All global interest rates near zero

It is important to note that short-term interest rates in all major economies will be close to zero and not a driver on exchange rates in the short term. Central banks will also continue to buy government bonds in an attempt to keep longer-term borrowing costs down. Markets will be monitoring longer-term budget trends and exploding deficits would tend to undermine currency-market confidence.

US Dollar foreign exchange prediction

The ISM non-manufacturing business sentiment index is due on Tuesday with a very sharp downturn likely. Employment data is likely to dominate during the second half of the week. ADP employment data is due on Wednesday with the jobless claims release due on Thursday.

Principal attention will focus on Friday’s employment report. There will inevitably be a huge decline in the number of non-farm payrolls for the month with estimates suggesting that there could be payrolls losses of over 22mn. The unemployment rate will also spike higher with market expectations of a rate around 16%, although there will be substantial variation in forecasts for both payrolls and unemployment.

Lower than expected job losses would tend to underpin global risk appetite, but markets will inevitable find it difficult to digest such extreme data.

Sterling foreign exchange prediction

The Bank of England will announce its latest monetary policy decision on Thursday with interest rates expected to remain on hold at 0.1%. The latest monetary policy report will also be released with the bank attempting to make some forecasts over the downturn.

It is unclear at this point whether Bank of England Governor Bailey will hold a press conference.

Political developments will be watched closely with the government set to unveil plans on how to ease lockdown measures. Sterling will be influenced strongly by trends in global risk appetite with the UK currency liable to weaken if confidence slides.

Euro foreign exchange prediction

The EU Commission is set to release its latest economic forecasts on Monday.

Political developments will be important with the Commission due to publish plans on financing a long-term recovery plan by May 7th. A positive tone would help support the Euro.

International FX forecast influences

The Reserve Bank of Australia will announce its latest interest rate decision on Tuesday with interest rate expected to remain on hold at 0.25%. The bank’s commentary on the outlook will be an important focus. 

The latest New Zealand employment data is scheduled for Wednesday local time with Q1 unemployment expected to be 4.4%.

Canada will release its latest jobs report on Friday. Inevitably, there will be a very sharp decline in employment, potentially of around 5.0mn on the month with unemployment projected to increase to 20.0%.

Currency FX Forecast for Next Week

Currency pair Spot  1-week forecast 1-month forecast
EUR/USD 1.097 1.090 1.105
USD/JPY 106.9 107.5 106.0
EUR/GBP 0.879 0.885 0.874
GBP/EUR 1.138 1.130 1.144
GBP/USD 1.248 1.232 1.264
AUD/USD 0.641 0.643 0.625
USD/CAD 1.408 1.415 1.395
USD/SGD 1.416 1.418 1.400
USD/HKD 7.752 7.760 7.770
NZD/USD 0.601 0.610 0.615
GBP/JPY 133.4 132.4 134.0
GBP/AUD 1.947 1.915 2.023
GBP/NZD 2.077 2.019 2.056
GBP/SGD 1.767 1.746 1.776
GBP/HKD 9.675 9.558 9.824
GBP/CHF 1.200 1.195 1.219

Tim Clayton

Tim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including Investing.com and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics.

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