7/25/2023 0 Comments Currency rates usd to eurThis creates a matrix of potential fair-value estimates which are then used to calculate a range of fair-value estimates. To overcome this potential problem, HSBC creates a series of calculations based on different reference points. To do this, it is necessary to compare the current REER value to some reference point.Īccording to HSBC, a common approach is to use the moving average as a reference point, but this requires an arbitrary choice of window length. The bank calculates a Real Effective Exchange Rate (REER) to measure whether a currency is over or under-valued. Overall, according to the bank, assuming global equities revert to a broadly upward trajectory and US yields continued to decline gradually then the dollar is likely to lose some ground. The dollar moves will be dominated by the trends in yields and equities with HSBC engaging in an extensive discussion surrounding the potential drivers of currency moves over the next few years.Īccording to HSBC “After a nearly three-year transition, it seems that bond yields and equities are shifting back to a more consistent positive correlation, as global inflation slows.” (0.88 for EUR/GBP) Yields and Equities Drive Currency Moves The Australian and New Zealand dollars as well as the Norwegian and Swedish currencies are expected to be weaker than expected over the next few months with the end-2028 forecasts only slightly weaker.Īlthough the Pound is often seen as undervalued at current levels against the Euro, the HSBC analysis does not support this view and the Pound to Euro (GBP/EUR) exchange rate is forecast to weaken to 1.1360 by 2028. Similarly, the bank expects sharp dollar to yen (USD/JPY) exchange rate depreciation by the middle of 2024 to 120 with a further move to 1.08 by the end of 2028. Overall, the Euro-to-dollar (EUR/USD) exchange rate is seen as weakening more by the second quarter of 2024 than in the following four years with a Q2-2024 forecast of 1.15 and end-2028 forecast of 1.18. It should, however, be noted that HSBC expects that the US Dollar (USD) will weaken sharply by the middle of 2024. ![]() Overall, the bank still considers that the dollar is overvalued and will revert towards fair value over five years as US yields decline and equity markets gain. ![]() ![]() Jump to the table of exchange rate forecasts at the bottom of the article here. Foreign exchange strategists at HSBC have issued its latest longer-term forecasts for major exchange rates, albeit with strong caution as to how they are used.
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