- 2021-2022 exchange rate forecasts from investment bank ING – update July 2021.
- Federal Reserve set to raise interest rates in 2022.
- US Dollar profile upgraded, but net losses still seen.
- EUR/USD to rise from current 1.19 to 1.23 on a 6-month view.
- GBP/USD forecast to rise from today’s 1.41 to 1.45 on a 12-month view.
- Commodity currencies forecast to make gains.
ING Still Reluctant to Embrace Dollar Gains
ING has adjusted its forecasts for US interest rates with the Federal Reserve now expected to sanction a first rate hike in the third quarter of 2022.
Given the shift in US expectations, ING has also revised its dollar forecast profile with the US currency expected to be stronger than the previous set of forecasts.
Nevertheless, ING notes that there are still headwinds to dollar gains over the remainder of 2021 and expects the ECB will have to reconsider its very dovish policy stance as the Euro-zone economy continues to recover. It expects the Euro to Dollar (EUR/USD) exchange rate to be held in a 1.17-1.23 range with the pair strengthening into year-end.
“Yet November and December are seasonally weak months for the dollar and assuming that the Eurozone recovery goes to plan, EUR/USD should still rally to the 1.23 area.”
It expects that the US currency will strengthen next year; “2Q22 is when the dollar should be rallying more broadly.”
Nevertheless, the 12-month EUR/USD forecast of 1.2000 is slightly above current levels.
ING does not expected sustained yen gains; “We are firmly in the global recovery – not recession camp and therefore expect US rates to start moving higher later this summer and send USD/JPY up too.”
UK Coronavirus Gamble but Low Sterling Volatility Expected
ING notes the importance of the UK coronavirus developments. The UK government strategy of easing restrictions at a time of a sharp increase in infections will pay dividends if serious illness remains contained and infection rates fall in the autumn.
A rise in serious illness could, however, trigger a sharp reversal and serious damage to business confidence.
According to ING; “Is Downing Street far-sighted or playing with fire?”
The bank, however, notes that overall volatility levels have declined and it considers the most likely outcome is for Sterling to edge stronger, especially if the global recovery narrative is correct.
The Pound to Dollar (GBP/USD) exchange rate, however, is not now expected to reach 1.5000 on a 12-month view.
Net Advance for Commodity Currencies
ING expects that commodity currencies will make net gains on the back of a continuing recovery in the global economy.
The extent of potential currency gains is likely to be driven to an important extent by central bank policies with more hawkish policies leading to stronger currency gains.
In this context, it expects that the New Zealand dollar will out-perform the Australian dollar with the Reserve Bank of New Zealand withdrawing some stimulus this year and raising rates next year.
The bank also remains constructive on the Canadian currency as long as US and global demand remains strong with renewed losses for the US Dollar to Canadian Dollar (USD/CAD) exchange rate.
“The main risks for the loonie are related to a slowdown in the US recovery or a sharp drop in oil prices. Neither of these are our base case, and we still expect sub-1.20 levels in USD/CAD in 4Q21.”
Above: Table of currency forecasts from ING covering period 2021-2022.
Read More: Exchange Rate 6-12 Month Forecasts: ING Update 2021