Lloyds Commercial Update Exchange Rate Forecasts for 2016, 2017 and 2018, US Dollar Sees Near-Term Downgrade

Lloyds have updated their exchange rate forecasts for 2016, 2017 and 2018 and included an upgrade in the near-term for the GBP to USD conversion.

Lloyds Bank Commercial have advised clients they have lowered their forecasts on the US dollar complex.

The downgrades are predicated on the assumption the next US Federal Reserve interest rate will now be in September and not June.

“This reflects ongoing caution among policymakers and recent mixed signals from the US economy. Our US policy rate forecasts, nevertheless, still contrast with market expectations, with the next hike not fully priced in until next year,” say Lloyds in the latest publication of their International Financial Outlook.

Expectation of a US policy rate rise in September underpins a forecast for 10yr yields to rise above 2% by the year end, which we expect to be sustained into next year.

This should also help to pull UK 10yr gilt yields up to 1.7%.

The Bank of England MPC will meanwhile be following the US Fed in raising interest rates with a tentative target pencilled in for late 2017.

The European Central Bank is meanwhile forecast to keep policy settings on hold.

All this translates into near-term US dollar forecasts being lowered, but the year-end end target for EUR/USD is unchanged at 1.12.

“We see more upside potential for sterling and have revised up our year-end forecast of GBP/USD to 1.52 from 1.47 and GBP/EUR to 1.36 from 1.31,” say Lloyds.

Analysts confirm they still see a weaker yen, though year-end USD/JPY is revised down slightly to 116.