The Big Banks’ Exchange Rate Forecast for Q3 2013

A few days ago, I revisited the exchange rate forecast of the top banks of the world for Q2 2013. I compared them with current spot prices to see how accurate their predictions were. On some pairs, the banks were totally off, but on others, they more or less got it right.

Today, let’s shift our focus to the future, as I show you where the world’s top banks think exchange rates will be in Q3 2013. Here’s what they have to say:

Q3 2013 Exchange Rate Outlook

Generally Dollar Bullish

As you’ve probably noticed from the forecasts, the world’s top banks are generally dollar bullish, except against the Australian dollar and New Zealand dollar. This isn’t such a huge surprise to many, given the recent trends in dollar pairs over the past few months.

The big banks didn’t exactly specify the reasons for their pro-dollar biases, but perhaps we can venture a few guesses.

For one, the rosier outlook for the U.S. economy has been keeping the dollar supported for quite some time now. In the latest FOMC statement, policymakers expressed their optimism for the job market, as they forecast that the jobless rate will reach their 6.5% target next year. On top of that, Fed officials upgraded their growth forecasts from 2.9-3.4% to 3.0-3.5% for 2014.

In addition, risk aversion due to the Fed’s stimulus taper plans has renewed demand for the safe-haven U.S. dollar. After all, the Fed’s inclination towards reducing bond purchases towards the end of the year and ending stimulus by mid-2014 could hit the brakes on economic growth. In effect, the U.S. central bank could wind up removing the main factor that has been supporting the U.S. economic recovery.

Disclaimer

Before y’all go off and start opening your trade positions for this quarter, let me leave you with a quick disclaimer. As I’ve stated numerous times in the past, these forecasts are simply educated guesses.

Even though the world’s top banks have plenty of number crunchers coming up with these figures, they still cannot predict currency prices with utmost certainty. Last quarter’s hits and misses are proof that big banks can still make mistakes.

That being said, it’s important to do your homework and come up with your own analysis to supplement their forecasts.