We continue to have a positive USD view for 2014. Relative monetary policy with the ECB on easing bias and tapering from the Fed should continue to push the EUR/USD lower. We now forecast that the EUR/USD at 1.26 (was 1.27) on a 12-month horizon.
We have changed our outlook for the EUR/GBP. We now expect relative monetary policy to be supportive of sterling to a higher degree. We expect the ECB to continue with its 'easing' basis in 2014 and introduce a new LTRO. On the contrary, it seems that the Bank of England has moved a bit closer to market pricing clearly acknowledging that the UK economy improved over the summer. We now expect the EUR/GBP to fall to 0.80 (previously 0.84) on a 12M horizon. We also assume that the current low correlation between the GBP and USD will be re-established in 2014. However, despite the expected appreciation, the GBP will stay in fundamentally 'undervalued' territory in 2014.
We have kept our view that both the SEK and NOK will appreciate against the EUR in 2014. However, we highlight the risk of a further Scandi sell-off over the next six weeks. We expect the Riksbank to cut rates on 17 December and liquidity is often poor in the Scandinavian currency market in December. The latter could hurt the NOK in particular. We have 1M forecasts for the EUR/NOK and EUR/SEK of 8.30 and 9.00, respectively. We continue to forecast that the EUR/NOK and EUR/SEK will fall to 7.80 and 8.40, respectively.
We still expect the AUD, NZD and CAD to weaken against the US dollar on a six- to 12-month horizon. However, in the near term, we could see a pause in the downturn in the three commodity currencies supported by improved risk appetite, a possible delay in the Fed's tapering and the ongoing recovery in China.
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EUR Underperformance Expected In 2014
Published 11/15/2013, 06:22 AM
Updated 05/14/2017, 06:45 AM
EUR Underperformance Expected In 2014
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