Next Week’s FX Forecast & Events Sep 14, 2020

Foreign Exchange Prediction Highlights

USD FX forecast:  Dollar confidence will remain very fragile, although there is scope for limited gains as the Federal Reserve adopts a measured stance at this stage.

EUR FX forecast: The Euro will remain vulnerable to a limited correction weaker, especially with the potential for Brexit trade fears to unsettle the currency.

GBP FX forecast: Sterling will remain vulnerable on trade fears, although losses should slow, and there will be a sharp bounce if the UK government retreats.

JPY FX forecast: The Japanese yen should maintain a firm tone with domestic investors still reluctant to channel investment funds overseas. 

Further volatility in equities

There is likely to be further volatility on Wall Street during the week ahead. Any sharp decline in equities would tend to provide support for the dollar, yen and Swiss franc while Sterling and commodity currencies would be vulnerable.

US political trends remain in focus

US politics will continue to be important with the Presidential and Congressional election campaigns intensifying. The dollar could lose some support if Democrat candidate Biden looks to be extending his lead in opinion polls.

US Dollar foreign exchange prediction

The Federal Reserve will announce its latest policy decision on Wednesday. No change in interest rates is expected at the meeting and the most likely outcome is that bond purchases will also be unchanged.

The Fed announced a new policy framework last month which upgraded the importance of full employment and aimed for an average inflation rate of 2.0% which implied a target above 2% in the short term. This would also tend to keep interest rates at very low levels for an even longer period.

Markets will be looking for further clarity on the Fed policy at this meeting. There will be a new set of economic and interest rate forecasts and Chair Powell will hold a press conference.

The latest retail sales data is due on Wednesday and jobless claims will again be important on Thursday.

Business confidence data will also be important with the latest data from New York and Philadelphia. A latest reading on consumer confidence is due on Friday.

The expectations of very low interest rates for an extended period will continue to sap US currency support, but sharp losses have already been priced in.

Sterling foreign exchange prediction

There was only a limited impact from UK data last week as political events dominated and this is again likely to be the case this week.

There was no progress in the latest round of trade talks, although the impact was overshadowed by a new row between the UK and EU.

The UK government introduced domestic legislation that would override the Northern Ireland protocol contained in the Withdrawal Agreement signed with the EU at the end of last year.

This plan triggered a furious reaction from the EU which threatened to take legal action and the UK stance also increased speculation that the trade talks will collapse.

In response, Sterling declined very sharply and posted 5-month lows against the Euro.

Political developments will therefore, be monitored very closely in the week ahead and will continue to have a substantial currency-market impact on Sterling. Sterling will slump if trade talks collapse

The Bank of England will announce its latest policy meeting on Thursday. No change in policy is expected at this meeting, but forward guidance will be important for Sterling direction.

Hints of further action later this year would tend to limit UK currency support.

Retail sales data is due on Friday.

Euro foreign exchange prediction

The ECB expressed some reservations over Euro strength at last week’s meeting, but there were no major protests.

Rhetoric will continue to be watched closely during the week ahead.

Brexit trade developments will also have a significant impact on Euro confidence.

Coronavirus developments will also be monitored closely with the number of new infections continuing to increase sharply in several countries including France and Spain. A further increase in cases would sap Euro confidence. 

International foreign exchange factors

The Bank of Japan will hold its latest policy decision on Thursday with no change expected.

Japanese political developments will be significant with the LDP holding its leadership election. Chief Cabinet Secretary Suga is expected to win which would maintain continuity.

Currency FX Forecast for Next Week

Currency pair Spot  1-week forecast 1-month forecast
EUR/USD 1.184 1.175 1.170
USD/JPY 106.2 106.5 104.8
EUR/GBP 0.926 0.930 0.910
GBP/EUR 1.080 1.075 1.099
GBP/USD 1.279 1.263 1.286
AUD/USD 0.728 0.720 0.715
USD/CAD 1.317 1.314 1.320
USD/SGD 1.369 1.370 1.365
USD/HKD 7.751 7.755 7.760
NZD/USD 0.667 0.662 0.655
GBP/JPY 135.8 134.6 134.7
GBP/AUD 1.756 1.755 1.798
GBP/NZD 1.917 1.909 1.963
GBP/SGD 1.750 1.731 1.755
GBP/HKD 9.92 9.80 9.98
GBP/CHF 1.164 1.163 1.192

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 and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics.

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