Dollar Forecasts 2014 + 2015: EUR/USD and GBP/USD Exchange Rate Could Fall for Remainder of 2014

The 2014 dollar rally had long been predicted, however a poor winter in the United States saw the economy slow down and the currency falter in response putting paid to the pro-USD predictions.

However, after a decent summer of gains we ask whether the USD is about to restart its stalled longer-term climb again?

For your reference, here are the latest spot rates at the time of this article's latest update:

• The pound dollar exchange rate is 0.01 pct lower on a daily comparison at 1.6618.
• The euro dollar exchange rate is 0.20 pct lower at 1.3317.

PS: All quotes here are taken from the wholesale markets. Your bank will affix a spread at their own discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more FX in some cases. Please find out more.

TD Securities Forecasting a Stronger Dollar

Martin Schwerdtfeger at TD Securities tells us why he is predicting a stronger USD:

Our G10 FX forecasts are largely unchanged this month. Our baseline view of a stronger dollar on improving US data is gaining support and is expected to remain a key theme in the year ahead. However, while for now we maintain our end 2014 targets for GBP/USD (1.68) and EUR/USD (1.32), downside risks are more evident.

We see this as a temporary, modest retracement triggered by a less than flattering week for US data, against the backdrop of a sizeable net USD long extension of late. The outlook for a stronger USD remains well in place. After all, softer US data this week will have little impact on the Fed's current path of policy normalization, and the more significant disappointments both in Eurozone and Japanese data did add – even if marginally – to the prolonged period of lax monetary policy both by the ECB and the BoJ.

Lloyds Bank Research: Positive Fundamentals to Push USD Higher

Justifying their pro-USD stance for the remainder of 2014 Lloyds Bank Research tell us:

"The USD has appreciated against its main peers in the past month. This in part reflects relatively strong US activity data, while geopolitical tensions in Eastern Europe and the Middle East may also be supportive.

"US Q2 GDP rose by a stronger-than-expected 4%, while the labour market continues to recover and robust July ISM surveys suggest Q3 GDP growth will also be rapid. Fed communications maintain a dovish tone, but markets are beginning to speculate the improving economic environment could lead to an earlier hike in interest rate.

"However, US treasury yields have been weighed down by the geopolitical risks. The FOMC tapered by a further $10bn in July (to $25bn) and QE is expected to end at their October policy meeting. Recent activity data in the euro area, Japan and UK have to varying degrees disappointed.

"While political developments may have a significant say on currencies in the short-term, we believe underlying economic fundamentals point to further dollar strength in the year ahead."

Pound to Dollar Exchange Rate to Fall

Meanwhile, Lloyds Reckon the GBP/USD rate is one currency that is particularly vulnerable to declines:

"We stick with our long-standing view that GBP/USD remains overvalued and has scope to fall further over the coming months if, as we expect, forthcoming data continue to highlight the improvement in the US economy and BoE communications provide, at worst, a balanced assessment of the UK monetary policy outlook.

"The uncertainty surrounding the Scottish Referendum poses an additional downside risk."