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2015 Forecasts for the Pound, Euro and Dollar Exchange Rates

euro dollar pound forecast

Exchange rate forecasts for early 2015 show markets remain subject to a strengthening US dollar, a depreciating euro and solid British pound.

The USD didn’t waste any time rallying in 2015 as it powered to nine-year peaks against both the euro which fell below $1.20. 

The sterling dollar rate is meanwhile predicted to test the 1.50 level in coming weeks as the dollar's momentum from 2014 continues to drive the world's largest currency forward.

"The greenback soared more than 12% against a currency basket in 2014 which marked its best year of gains since 1997," says Joe Manimbo at Western Union.

That said, it is not going to be one-way flow in the dollar's favour as the path ahead is littered with resistance and support levels and key fundamental risks.

For reference, the following rates are seen at the time of this articles update:

The above quotes are taken from the global FX spot market. It must be noted that your bank will widen the spread on the above numbers when passing on their retail rate to customers. An independent FX provider will however guarantee to undercut the bank's offer thus delivering you more forex. Please see more on this here.

US Dollar Forecast: Is There More Strength Ahead?

"No longer under the weight of year-end profit-taking and book balancing, the dollar seemingly started 2015 with a new lease on life," notes Manimbo.

The dollar built on its best year of overall gains since 1997 with accelerated appreciation in the early stages of 2015.

According to Greg Anderson at BMO Capital:

"We view its rally thus far as being a normal correction from extreme undervaluation. That correction is justified by improvement in the US’s twin deficit fundamentals and FDI-inflow prospects. It is also supported by the potential for Fed rate hikes. We see the USD as still weak relative to its historical inflation-adjusted average, so it is far too early to start talking about a USD overshoot."

What Does the Pound Dollar Exchange Rate's Outlook Look Like?

Markets have been developing an assumption that UK rate rises are being pushed back further. A lot of this is based on the various speeches made by members of the Bank's Monetary Policy Committee over the last quarter of 2014.

This view has been strengthened at the start of 2015 with the release of sub-par economic data and January Bank of England Minutes that show the number of board members voting for interest rate rises has fallen from 2 to 0.

Technically speaking, Lucy Lillicrap reckons the 1.40 level could ultimately be the line below which the pound will not pass against the USD:

"Attention clearly switched to Sterling at the very beginning of 2015 with prices experiencing a sharp sell-off to end last week. Oversold near term readings would argue some relative stability is possible here initially but given the absence of an obvious base or reversal pattern fresh GBP strength will probably prove unsustainable.

"Thus, even if an extension below the psychological 1.5000 level is delayed for several more days, downside risk predominates from an intermediate perspective. For the most part in recent years this pair has remained largely range bound between 1.4000 and 1.7000. Having failed on the top-side in 2014 a re-test towards the 1.4800 area lows we saw in 2013 is now implied going forwards with intervening recoveries likely to remain relatively short-lived."

According to BMO Capital, "rate differentials are net USD supportive, but GBP rates can only fall so far due to declining domestic savings. UK GDP growth momentum has slowed but not enough to materially cut the trade deficit in 1H 2015. We see GBPUSD at 1.47 in 3M followed by stabilisation."

What Does a Stronger Dollar Mean for the Euro?

Turning to the euro dollar exchange rate forecast we note it would take a brave analyst to back the euro in the medium and longer-term at this stage.

"We look for EUR to continue to decline as the ECB launches its QE program. For the most part, other European currencies will move along with the EUR. We look for EURUSD to move to 1.10," says Anderson.

Greg Gibbs at RBS tells us:

"The EUR/USD broke below key supports around 1.2750/1.2800 (61.8% Fibonacci support of the rise from the low in 2012 (1.2043) to the high in 2014 (1.3993), and a series of lows in 2013 made around the taper-tantrum in 2013) and will not feel like it can settle down until it falls towards the low in 2012.

"We have seen recently a standard consolidation after a rapid policy induced fall from the highs this year in May, but the trend is clearly down. Even if we see 1.200, it will not be clear fundamentally that the EUR should more than stabilise for a period before significant new lows."

"Month-end flows may provide some support but we doubt it will be enough for EURUSD to turn bid."

And What of the Euro vs Pound Sterling?

euro to pound exchange rate forecast Turning to the euro to pound exchange rate forecast we hear that Piet Lammens at KBC Markets is maintaining the view that the trend in EUR/GBP stays downward longer term.

Short-term, though the trend shows signs of fatigue. The 0.7850/0.7755 is a tough support, key resistance stands around 0.8066.

Luc Luyet at Swissquote is also inclined to back the pound over the euro in the longer-term:

"The underlying downtrend favours a test of the major support area between 0.7755 and 0.7694 at minimum. A decisive break of the resistance at 0.8034 is needed to suggest some exhaustion in the medium-term selling pressures."

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