Our brand-new quarterly forecast comes at a testing time in the currency markets. Despite this, major banks still make their predictions on where currencies will be by for the next quarter and beyond. See what the ‘experts’ predict the pound will be worth against the euro and dollar by Easter this year.
After a testing winter and the reality of recession setting in, Sunak’s government will have to navigate a variety of issues that may impact an already pressured pound. Inflation is no longer at a 41-year high but still way above the Bank of England’s target, and investors are keen to see how Sunak deals with post-Brexit relations.
In the eurozone, the inflation outlook has slightly improved, but analysts suggest expensive energy imports could still push EUR/USD back to parity in 2023.
Across the pond, the US dollar started the year strong against most of its major rivals however, fears that the Federal Reserve will ease its foot off the gas with monetary policy tightening sent the dollar tumbling against a basket of its rival currencies in the second week of January.
In short, economic uncertainty is prevalent, and this is reflected in the currency markets.
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For our readers who need to make sizeable overseas transactions, or for those at risk to currency fluctuations, we suggest staying well informed and incorporating a risk management approach to your currency. We strongly suggest you do not base any crucial financial decisions on predictions from major banks alone.
Having said that, these predictions do build into a fascinating guide to the political and economic events that will influence the movements of sterling and other currencies.
Our Quarterly Forecast covering January-March is free to download and packed with analysis and insight from our currency experts at Smart.
Pound versus euro
According to some analysts, the pound could fall to around €1.11 against the euro in the next three months. Not everyone is pessimistic though, as some predictions suggest the pound could stretch to a high of €1.22 by Easter.
At the start of last week the pound relinquished weekly gains made against the euro, losing around 0.48% at the time of writing. This was due to a mixed bag of economic worries which weren’t made any better by the BoE’s chief economist Huw Pill, who warned of prolonged inflationary pressures for the year ahead.
Almost a week later, the pound made a swift recovery and maintains gains incurred against the single currency following wages data. The data last week revealed that UK wages were rising faster than the bank of England expected, pointing to the likelihood of a more aggressive interest hike to follow – investors are keen on higher interests rates as this means a bigger return on their money.
On Tuesday, GBP/EUR strengthened by around 0.92% on a weekly basis and around 0.82% on a monthly comparison.
Pound versus dollar
Versus the dollar it is a similar story of less pessimistic predictions. Analysts say that the pound will hit a low of $1.07 in the next three months, but could peak to a high of $1.26 within the same time span.
We can’t tell just yet whether they’re right however over the past two weeks, the dollar has been under continued pressure due to growing fears that the federal reserve will be easing on interest rate hikes in the fight to tame unruly inflation. As a result, the dollar lost strength against a basket of its competitors last week. This has also been reflected in the pound to dollar rate, which strengthened by around 1.15% this week and 0.95% the week before.
Recent economic data released in the US revealed that the country’s wider economy is facing rising headwinds.
As this week progresses, dollar watchers will have a slew of key data releases to digest which could vey well paint a similar picture. Investors will be looking out for mortgage rates, initial jobless claims, personal income and much more for clues on how the dollar and US economy will perform.
Euro versus dollar
In the latest predictions published in our Quarterly Forecast, leading banks said that the EUR/USD rate will reach a low of $0.95 between now and Easter. As well as this, the high is expected to reach only $1.11. So far, it has been a choppy week for the single currency against the US dollar, however the euro has maintained weekly gains of around 0.49% following around 1.12% the previous week.
The surge in strength was down to a number of reasons, however the slightly more dovish approach from the Fed was a key contributing factor. In addition, hawkish noises from the ECB, particularly from President Lagarde on Monday triggered the euro to rally against the dollar. Read our article on hawks and doves here for further information on what these terms mean.
What does this mean for your currency?
The predictions above and this week’s movements are an example of how inevitable currency fluctuations are. If you are making large overseas transactions it is vital that you protect your budget against currency movements. Get a quote from us today by completing our simple form and we will get in touch with you on how best to assist you with your currency requirements
