News & Analysis

Our December forecasts anticipated a period of USD stability in the near-term as the international Covid-19 situation remained an economic risk. While the current Covid-19 waves visible in Europe and North America have led to tighter localised lockdown measures and a headwind to the global economic recovery, markets have shown their willingness to look through the deterioration in the near-term economic outlook, instead focusing on the resumption in the global recovery in 2021. This has been evident in how the DXY index has traded, with it falling over 2% since the December forecasts were publicised as Pfizer and Moderna vaccines gained approval and their distribution began in major economies.

While our medium-term forecast of sustained USD depreciation remains intact, the decline in the dollar in December has led us to revise our near-term forecasts to factor in a weaker dollar heading into January 2021.

Currency pairs such as EURUSD, USDJPY, USDCHF, USDZAR, and AUDUSD have been revised across all forecast horizons to incorporate the recent decline in the near-term while maintaining our structurally bearish USD call over the medium-term. Meanwhile, USDCAD and USDRUB have been tweaked over the 1-month horizon to factor in December’s USD downturn. We have also adjusted our one-month GBPUSD forecast to incorporate a sustained mild rally in the pound on the back of Brexit clarity, while our USDTRY forecasts have also been modified to factor in the latest market friendly policies by the CBRT.



Since our previous forecasts, encouraging news around the clinical developments and success of Covid-19 vaccines have helped to improve risk appetite, giving the euro a boost against the safe haven dollar. While our forecasts on EURUSD for 2021 have been bullish for some time, the decline in the dollar in December occurred earlier than we anticipated. Therefore, we have increased our EURUSD trajectory for 2021 accordingly.

Our forecasts continue to envisage a rally throughout 2021, with the move mostly being front-loaded as the re-opening of economies and vaccine rollout in the first half of the year kickstarts the rally.


Our Japanese yen forecasts have been another victim of the recent USD decline. We have marginally revised down our USDJPY forecasts over the coming 12-months, as outlined in our latest JPY outlook, to reflect our expectations of a softer dollar in the coming twelve months, while the yen also embraces a strong economic recovery in Japan due to robust economic stimulus packages. However, we remain sceptical of a more aggressive JPY rally due to the deflationary effects and officials sensitivity to the ¥100/USD level.


The announcement of a Brexit deal on December 24th has removed substantial downside risks to our GBP outlook. However, sterling has enjoyed a limited relief rally in response to the announcement of a deal. This is due to the narrow nature of the trade deal in question and the severe economic challenges that still faces the UK economy in the short-run as authorities battle to contain the domestic Covid-19 situation. With this near-term headwind to the economic recovery in play, we don’t foresee sterling as one of the main beneficiaries of USD weakness in January.


With our EURCHF December forecast of 1.085 practically reached at year-end, we have brought forward our previous EURCHF forecasts to also represent a more aggressive rally in the euro in the coming months – i.e. December’s 3-month forecast is now January’s 1-month forecast. While we see the Swiss franc weakening against the euro over the coming 12-months, we envisage little movement against the dollar. In this scenario, the SNB are unlikely to intervene in FX markets, which will appease the US Treasury department after they labelled Switzerland an “FX manipulator” in December. A sudden deterioration in risk appetite poses a downside risk to our EURCHF forecast, however.


While the lira hasn’t moved too much on the back of a weaker dollar, it has enjoyed the stabilisation in risk appetite and the return to an orthodox monetary policy regime.

This has resulted in our bullish TRY forecasts becoming realised earlier than we expected.

In response to this, we have risen our 1-month, 3-month and 6-month forecasts accordingly, while maintaining our longer-run forecast of 6.8 for year-end. The CBRT’s latest hike reinforced our expectations that the CBRT is committed to driving inflation back into single digits, which should aid the lira recovery over the coming year.


The South African rand’s rally of nearly 4% against the US dollar in December meant that our December forecasts needed revising in the short-run. The recovery in risk appetite and domestic economic data over the fourth quarter has combined with vaccine optimism to drive a return of foreign investors back into the SAGB market, and in turn, the rand. While we expected this in December’s forecasts, we didn’t factor it in until 21H1. With global markets showing their willingness to look through domestic Covid concerns for now, we expect the rand’s recovery to continue on a strong footing in 2021 as vaccine optimism buoys risk sentiment.



Simon Harvey, Senior FX Market Analyst
Olivia Alvarez Mendez, FX Market Analyst
Ima Sammani, FX Market Analyst



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