Next Week’s FX Forecast & Events May 11, 2020

USD FX forecast:  The dollar will be undermined by low yields and will also lose ground if defensive demand remains lower, but complacency over global risk would be dangerous. 

EUR FX forecast: The Euro will struggle to make much headway unless there is a strong unified political stance within the Euro-zone. 

GBP FX forecast: Sterling will be hampered by unease over the UK coronavirus exit strategy and trade friction with little scope for immediate gains. 

JPY FX forecast: The yen is likely to remain resilient in the short term with little incentive for Japanese funds to push funds into overseas assets. 

US-China relations still important 

Despite underlying tensions between the US Administration and China, immediate fears eased slightly after reports that the two sides had talks on the trade agreement.

Political developments between the two sides will still be very important in the weak ahead. Equity markets will lose ground if rhetoric becomes more antagonistic between the two sides.

Coronavirus exit strategies again in focus

Markets will also be watching very closely for evidence of whether the easing of measures that have already taken place are leading to an increase in transmission rates. If there is a significant increase there will be fears that restrictions will have to be tightened again which would undermine risk sentiment.

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.

Limited impact from extraordinary data 

There was a remarkably measured impact to the latest US jobs data which recorded an unprecedented 20.5 million decline in non-farm payrolls and an increase in the unemployment rate to a record 14.7%.

Markets are looking ahead to an expected recovery later in 2020 and the impact was also limited by the fact that interest rates will remain close to zero in all major economies.

US Dollar foreign exchange prediction

The US CPI inflation data is due on Tuesday with a further sharp reduction in prices expected on the month with the annual rate forecast to dip below 1.0%.

The jobless claims data will again be monitored closely on Thursday. Retail sales data is due on Friday with a sharp decline expected as lockdown measures take effect. 

The dollar will be vulnerable if there is further speculation that the US Federal Reserve could move to negative interest rates.

Trends in risk appetite will dominate with the dollar tending to lose ground if equity markets maintain a robust tone. There will be scope for limited net dollar gains if equities move lower.

Sterling foreign exchange prediction

The first estimate of March GDP is due on Wednesday with the ONS also releasing its estimate of the first-quarter performance. The Bank of England expects the economy to have declined around 3% for the quarter with a 25% slump for the second quarter. 

Developments in the UK/EU trade negotiations will be watched closely during the week with Sterling vulnerable to selling if there is no progress.

Euro foreign exchange prediction

EU political developments will be monitored closely during the week with markets also monitoring ECB rhetoric. The Euro will be vulnerable if there is evidence of divisions within the central bank and governments while a more unified stance would offer currency protection. 

International FX forecast influences

The Reserve Bank of New Zealand will announce its latest interest rate decision on Wednesday with the Governor holding a press conference. Rates are expected to be held at 0.25%, although there will be speculation over a cut. The bank’s rhetoric on the potential for negative interest rates will also be monitored closely.

Currency FX Forecast for Next Week

Currency pair Spot  1-week forecast 1-month forecast
EUR/USD 1.083 1.090 1.105
USD/JPY 106.6 107.0 105.0
EUR/GBP 0.874 0.882 0.872
GBP/EUR 1.145 1.134 1.147
GBP/USD 1.240 1.236 1.267
AUD/USD 0.653 0.660 0.635
USD/CAD 1.394 1.406 1.400
USD/SGD 1.413 1.415 1.405
USD/HKD 7.752 7.760 7.770
NZD/USD 0.616 0.620 0.610
GBP/JPY 132.2 132.2 133.1
GBP/AUD 1.899 1.872 1.996
GBP/NZD 2.014 1.993 2.077
GBP/SGD 1.752 1.749 1.780
GBP/HKD 9.611 9.590 9.846
GBP/CHF 1.207 1.197 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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