By Samuel Indyk
Investing.com – HSBC has brought forward its expectations for a recovery in the US dollar in 2021 and has updated its major FX forecasts to reflect this.
The bank had previously expected the USD to begin recovering later this year but has brought it forward due to peaking global growth and the slow journey of normalisation from the Federal Reserve.
Historic Patterns
HSBC notes that the USD weakness through 2020 is comparable to 2017 which global growth was on a healthy upswing. Towards the end of 2017 that began to lose momentum global growth slowed in 2018, coinciding with the USD bottoming.
HSBC says the USD outlook is not exactly comparable to 2018 in terms of magnitude yet one of their main arguments for the USD to strengthen gradually has centred on global growth peaking, followed by the likelihood of losing some momentum.
Fed Tightening
HSBC also thinks that the Federal Reserve’s plan to taper and its divergent monetary policy stance from other central banks should eventually guide the USD stronger, especially once tapering actually starts.
FX Forecasts
HSBC says they expect the USD to strengthen, but modestly so.
The bank has lowered its forecast for EUR/USD in Q4 from 1.2300 to 1.1500 sees the pair dropping to 1.1300 by Q2 next year.
The bank’s GBP/USD forecast is unchanged and they see the pair at 1.3400 at the end of the year.
They now see EUR/GBP at 0.8600 at the end of the year form the previous forecast of 0.9200.
USD/JPY is expected at 110.00 in Q4 from their previous forecast of 106.00.