2023-2024 exchange rate forecasts from Danske Bank - update October
- Updated foreign exchange forecasts from Danske Bank - update October 2023
- The tightening of financial conditions will continue to underpin the dollar.
- Near-term EUR/USD relief rallies are liable to fade quickly with 1.03 in 12 months.
- USD/JPY forecast to weaken to 130 in 12 months amid fragile growth and lower US yields.
- Peak BoE interest rates will hurt the Pound, GBP/USD to weaken to 1.16 in 12 months.
- Commodity currencies will be hampered by tight financial conditions and a firm dollar.
- Norwegian krone forecasts have been downgraded due to vulnerable risk conditions.
Foreign exchange analysts at Danske Bank overall expect that the global economy will continue to struggle over the next few months as the tighter monetary policies sap demand and confidence.
In this context, it expects that tighter financial conditions will provide underlying dollar support and maintain generally unfavourable risk conditions.
The bank does see risks on both sides to the central forecast and both extremes would tend to undermine the dollar.
There will be a rebound in risk conditions if there is a sharp decline in core inflation and a more resilient than expected global economy.
It adds; “Also a much harder landing than what we pencil in would require a sharp easing of global monetary conditions which would likely entail a much weaker USD after an initial squeeze higher."
Danske reiterates that Europe is vulnerable to higher energy prices, especially if there is a spike in gas prices.
It also considers that the US economy is in a more favourable position; “we expect that the US economy will be better equipped to withstand the restrictive effects of monetary policy tightening compared to the euro area.”
In this context, it expects that the Euro will be vulnerable to underlying pressure; “We maintain the strategic case for a lower EUR/USD based on relative terms of trade, real rates (growth prospects) and relative unit labour costs. Hence, we maintain our 12M forecast at 1.03.”
It does, however, see scope for a near-term rally in the EUR/USD to 1.08 amid a short-term easing of global pessimism.
Yen to Strengthen, Slower yuan losses
Danske considers that US yields are at or close to peak levels and a retreat in yields will help protect the Japanese currency.
It adds; “In addition, historical data suggests that a global environment characterized by declining growth and inflation tends to favour the JPY.”
Monetary easing will tend to undermine the Chinese yuan, but Danske notes that the authorities have resisted depreciation.
It adds; “As China has shown a stronger determination lately to defend the CNY and sentiment is already very weak, we have lowered our expectation of the pace of CNY weakening against USD.
The 12-month USD/CNY forecast has been cut to 7.50 from 7.70.
Pound Sterling remains vulnerable
Danske maintains a negative stance towards the UK economic outlook.
According to the bank; “Overall, we expect the UK economy to perform relatively worse than the euro area and the conclusion of the Bank of England hiking cycle to weigh on GBP.”
It still considers that the relative fundamentals suggest that moves will be relatively contained, but with the Euro edging higher against the Pound.
Commodity currencies need global relief
Under Danske’s central profile, it expects gradual Australian dollar depreciation amid vulnerable risk conditions and fragile global growth.
It does, however, add; “If inflation remains under control and global central banks start to signal more cautious outlook, we see room for a tactical uptick in AUD/USD.”
As far as the Canadian dollar is concerned, Danske expects tighter financial conditions will hamper the Canadian currency.
In this context, the Canadian dollar will need stronger global growth or a sharp easing of global monetary conditions in response to a very hard landing for the global economy to make significant headway.
Swedish and Norwegian currencies vulnerable
The Swedish Riksbank has hedged part of its currency reserves which has supported the krona. Danske notes; “We flagged that if the Riksbank opts for a frontloaded FX reserves hedging program it could be the straw that breaks the camel’s back. They did. And it was.”
Nevertheless, it does not consider that this will provide longer-lasting krona support.
According to Danske; “we see this as a transitory effect unless other investors follow suit. With structural and cyclical, including monetary policy, headwinds still in place we foresee no major turnaround in the SEK over the medium term.”
Danske expects that the main driver for the Norwegian krone will be the global growth and risk environment.
It adds; “in an environment of weakening growth, tight global monetary conditions and a strong USD, the NOK very rarely performs.
The bank has downgraded its forecasts for the krone with no return from undervalued conditions during the next 12 months. EUR/NOK is now forecast at 12.00 in 12 months.
Table of currency forecasts from Danske Bank covering period 2023-2024
| Pair | spot | 1month | 3months | 6months | 12months |
|---|---|---|---|---|---|
| EUR/USD | 1.06 | 1.08 | 1.07 | 1.06 | 1.03 |
| USD/JPY | 150 | 145 | 142 | 132 | 130 |
| GBP/USD | 1.21 | 1.24 | 1.22 | 1.19 | 1.16 |
| EUR/GBP | 0.87 | 0.87 | 0.88 | 0.88 | 0.89 |
| EUR/CHF | 0.95 | 0.95 | 0.94 | 0.93 | 0.93 |
| AUD/USD | 0.63 | 0.64 | 0.64 | 0.63 | 0.62 |
| NZD/USD | 0.58 | 0.59 | 0.59 | 0.58 | 0.57 |
| USD/CAD | 1.38 | 1.37 | 1.39 | 1.40 | 1.42 |
| USD/CNY | 7.32 | 7.30 | 7.35 | 7.40 | 7.50 |
| EUR/NOK | 11.80 | 11.90 | 12.10 | 12.10 | 12.00 |
| EUR/SEK | 11.70 | 11.60 | 11.50 | 11.70 | 11.80 |