Forex: Scotiabank expects 3.5% global growth and dropping EUR/USD and GBP/USD

on Dec 21, 2013
Updated: Oct 21, 2019
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Scotiabank, the third largest bank in Canada by deposits and market capitalization, says in its latest Foreign Exchange Outlook that currency markets “are being driven by three core themes: global central bank policy, the outlook for relative growth, and politics”, and gives its forecasts for next year.
According to the bank’s predictions world growth would increase from 2.9 percent this year to 3.5 percent in 2014 due to economic strengthening in North and Latin Americas, Europe and the emerging Asian ex-China profile. However, the bank says that global growth is still “fragile and an important risk going forward”.

The bank notes that the US Fed is due to tighten its easy monetary policy, while the European Central Bank and the Bank of Japan “are in the midst of taking more dovish turns”. The bank also states that the growth in the US is forecast to “lead the advanced economies, which should also support a broadly stronger” US dollar.
“Globally the pressures of disinflation have opened the door to a more dovish turn at many central banks, while others are forced to remain hawkish based on financial stability risks. These policy divergences will be important drivers in 2014”, says the outlook.

The bank’s outlook for the forex market suggests that the EUR/USD would fall to Q1 1.3000 in the first quarter of 2014, would hit 1.2900 in Q2, 1.2700 in Q3 and finally observe 1.2500 in Q4. The USD/JPY is expected to be at 102 in Q1, then to start to increase and reach 104 in Q2, 107 in Q3 and trade at 109 in the fourth quarter.

The pound is forecast to weaken against the US dollar to 1.6000 in Q1, subsequently the GBP/USD to drop to 1.5900 in the second quarter, to trade at 1.5800 in the third quarter and to decline to 1.5700 in Q4.
The USD/CAD is projected to be at 1.0700 in Q1, to rise to 1.0800 in Q2, to retrace back to 1.0700 in the next quarter and in Q4 to hit again 1.0600.

The AUD/USD is expected to fall to 0.8700 in the three months to March, to rebound to 0.90 in the next two quarters and to reach 0.9300 in Q4.
The bank also expects the US dollar “to strengthen broadly on relative central bank policy and growth”, the Canadian dollar to face “near-term weakness followed by stabilization late in 2014”, the Japanese yen to be “vulnerable to weakness on a more aggressive BoJ and risks to growth”. For the euro Scotiabank says that “the resilience continues to surprise, but the dovish turn at the ECB and growth should weigh heavily”, and for the pound says that “the currency has been priced to perfection, leaving it vulnerable to downside risk in 2014”.
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