December 2, 2016

Just a few weeks before the start of the 2017 New Year, we are releasing this forecast for all of the major currency pairs, based on the opinions of the representatives of leading banks and brokerage firms.

There is no doubt at all that absolutely all currency traders would like to know where the dollar will move after the newly elected US president Donald Trump finally ascends to power. The US currency already surprised us on the day the voting results were announced: the US dollar decline that had been expected by many lasted for just a few hours, after which the trend reversed and the dollar began to steadily rise. So should we now be expecting new surprises in the coming year?

According to Deutsche Bank's Alan Ruskin, the situation is reminiscent of the early stages of 1983-84 "boom" following the election of President Ronald Reagan. "Trump wants to reduce the tax rate on economic activity from 35% to 15%, in order to turn the USA into one of the most competitive countries in the world from a taxation perspective."   

A similar view is shared by Greg Anderson of BMO Capital. "Reducing the US corporate tax rates and cracking down on loopholes has huge potential to dramatically influence the competitiveness of American business,” he says. “Therefore in the long term we will have a strong dollar for the duration of Trump’s ‘tenancy’ in the White House."

Amongst many other factors positively affecting the US currency analysts have identified the change in import tariffs, as well as immigration cuts. Thus, the decline in imports by a modest 5-10% can lead to a similar appreciation in the dollar. As for the reduction in the number of immigrants, this will have an impact on the volume of money transfers abroad, with the decline of dollar sales through this channel contributing to its strengthening.

"Our team has raised its forecasts for US GDP growth by 1.1% for 2018 and by 1.2% for 2019,” says Societe Generale analyst Kit Juckes. “We see an optimal balance between the growth of the dollar and potential inflation. Real interest rates will benefit the dollar as well."

Speaking about the growth of the dollar, it should be noted that a sufficiently large number of experts believes that this process will not last for long. For instance, some scepticism in this respect was expressed by Deutsche Bank strategist Marco Stringa, who thinks that the effect of Trump's calming statements is ambiguous even in the medium term.

"It is evident that in the next 12 months a lot will depend on whether Trump's campaign speeches will coincide with or diverge from his actual actions,” says John Gordon, head of the analytical department at the brokerage company NordFX. “However, when considering the United States we should not forget about what is happening in the Old World. The political uncertainty in the Eurozone definitely plays into the hands of Trump and will slow the recovery of the EU economy. This seriously weakens the position of the euro against other world currencies, primarily against the US dollar.”

“After the Brexit referendum, separatist sentiments in Europe have not only remained, but also continue to grow. This also applies to Italy, to the general election in the Netherlands (where the population harbours fairly strong anti-EU feelings), to the parliamentary election in Germany, and to the presidential elections in France, Germany, Hungary, and Slovenia. Add to that the flow of refugees from the Middle East and North Africa and you start realising that all these problems combined are more than sufficient to compensate for any potential errors of Trump and his administration." 

"If you look at the forecasts of leading banks some of them do not look at all promising for the European currency,” continues John Gordon of NordFX.  “For example, according to Barclays estimates, the EURUSD pair will be approach parity in the second quarter of 2017, descending below the landmark line of 1.00 in the third quarter and ending the year in the 0.99 area.”

“Forecasts by Commerzbank (1.04 in the IV quarter of next year) and by Lloyds Bank (1.06) are more optimistic with respect to the euro. The JP Morgan forecast, meanwhile, contrasts sharply with the opinions of its Barclays colleagues: the US firm predicts growth of the euro to the level of 1.20 in September 2017.”

“As for other currency pairs, Barclays expect the British pound and the yen to actually strengthen their position in relation to the dollar, unlike the euro, forecasting 1.30 for GBPUSD and 100.00 for the USDJPY pair at the end of next year,” says the leading analyst of NordFX. “Nomura also believes that it is time to open short positions for USDJPY. JP Morgan analysts are also in agreement, referring to precisely the same target for the pairs, this being 100.00.

As for the British pound, both Barclays and JP Morgan believe that Brexit will benefit the UK currency and it will rise against the US dollar to the 1.33 mark."


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