Exchange Rate Forecasts 2016-2017: UniCredit See Pound Higher v Dollar, Euro Lower

UniCredit have updated markets with their latest foreign exchange rate forecasts and the key takeaway is that dollar weakness will remain a feature over coming months.

The dollar is held to be overvalued and any strength must be viewed as a temporary correction in a broader trend.

“The dollar’s decline is not over yet – it remains overvalued in TW terms – and will likely continue in the coming months as the Great Dollar Correction unfolds,” says Roberto Mialich, FX Strategist with UniCredit Bank in Milan.

The British pound is expected to remain largely poll-dependent in the remaining time ahead of Britain’s referendum on EU membership, but UniCredit see a risk that, given the still-high uncertainty surrounding the outcome of the vote, investors may prudently pair positions and square books.

Therefore as the 23rd of June deadline gets closer we should expect any sterling gains to be short-lived.

Analysts however forecast the pound to dollar exchange rate to trade at 1.46 by the end of the third quarter of 2016 ahead of a rise to 1.50.

Look for the pound to advance through 2017 with 1.55 being seen by mid-year and 1.60 by the end of 2017.

The British pound is trading below what appears to be a confident assumption of fair value by analysts.

The euro to pound sterling exchange rate is forecast at 0.75 by the end of the third quarter, where it is expected to stay right through to the third quarter of 2017.

Turning the equation around this is a pound to euro conversion of 1.33.

The euro to dollar conversion is meanwhile expected to edge lower, in line with many of the views held by other analysts we have been reporting on this week.

However, the falls forecast by UniCredit are not dramatic with a low point of 1.07 being pencilled in for mid-year with 1.09 being seen by September.

Look for a rise to 1.12 by the end of 2016 ahead of a gradual rise through 2018 that sees the exchange rate close the year at 1.18.