Euro Dollar Forecast to Hit 1.15 by BNP Paribas

The 2015 exchange rate forecasts at BNP Paribas have been released, and it appears the euro is in line for hefty declines against the US dollar.

Forecasts for a softer euro in 2015 are not hard to find; analysts are banking on the European Central Bank (ECB) to introduce more aggressive policy actions to try and boost the moribund economy.

According to BNP Paribas, the theme of policy divergence that drove EURUSD lower in 2014 should persist in 2015 as the start of the Fed’s policy tightening in June contrasts with an ongoing balance sheet expansion by the ECB.

The French bank told clients:

“We expect real rate differentials to remain a useful framework for capturing the FX impact of both conventional and unconventional central bank policies.

“Specifically, we think that higher US nominal rates and higher Eurozone inflation expectations will do most of the heavy lifting in moving the real rate differential against the EUR and in favour of the USD.

“Our rates strategists’ forecasts imply a widening of 2y nominal rate differentials by 125bp.

“If the ECB is successful at pushing eurozone inflation expectations higher, real rates should move even more (closer to 200bp), suggesting that the risk is for an even weaker EURUSD than we are currently forecasting.”

US Dollar to Advance Against Yen to 128

Another key forecast issued by BNP Paribas concerns the ascent of the US dollar against its Japanese rival.

Despite the fact that USDJPY has already rallied substantially, analysts believe there is more to come in 2015.

Commenting, BNP say:

“The BoJ’s ‘shock and awe’ approach has been effective in triggering quick JPY sell-offs. However the underlying story of Japanese investor outflows driven by increasingly negative interest rates at home is only starting to play out and should drive the yen lower even in the absence of further BoJ policy action.

“The risk is that the move becomes too fast for the MoF’s liking, but as we saw in late 2014, mild jawboning merely slows the USDJPY uptrend.”

A target of USD/JPY @ 128 has been advised.