Looking at the consensus of FX analysts, the biggest gains* in the G10 against the dollar are expected to be the Norwegian krone (+3%) and the pound (+2%), while the biggest losses are expected for the New Zealand dollar (-3%) and Swiss franc (-2%). Both the euro and the yen are expected to eke out small gains against the dollar (Chart 1). None of these moves are even half of the typical volatility of these currencies – so for most of the G10, analysts do not hold strong views…
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Looking at the consensus of FX analysts, the biggest gains* in the G10 against the dollar are expected to be the Norwegian krone (+3%) and the pound (+2%), while the biggest losses are expected for the New Zealand dollar (-3%) and Swiss franc (-2%). Both the euro and the yen are expected to eke out small gains against the dollar (Chart 1). None of these moves are even half of the typical volatility of these currencies – so for most of the G10, analysts do not hold strong views.
Meanwhile in EM currencies, the biggest winners are expected to be the Indian rupee (+4%), Turkish lira (+4%), and Brazilian real (+3%). The only major loser is expected to be the Taiwan dollar (-4%) (Chart 2). Again, most of the expected moves are within half of the typical volatility; only the Indian rupee, Indonesian rupiah, and Taiwan dollar moves are greater.
Individual Bank Views
Do any of the larger banks have any non-consensus views on the major currencies? Well, the average end-2020 forecast for the euro is 1.15. Most banks cluster around that figure: JP Morgan, Citi, Goldman Sachs, Bank of America, BNP and Nomura are in the 1.14 to 1.16 range. Deutsche Bank is higher at 1.19, while Barclays is lower at 1.07. For USD/JPY, the consensus forecast is 107, but there is slightly more variation among banks. On the lower end we have Citi, Goldman Sachs, Bank of America, BNP, Barclays and MUFG are in the 102-105 range. Meanwhile on the higher end we have JP Morgan and Nomura in the 110-112 range.
How Did Consensus Perform in 2019?
At the start of 2019, the consensus was for the Norwegian krone, the pound, and the Swedish krona to see the biggest gains in G10 – the pound view was right, but the Norwegian krone fell and the Swedish krona was the worst performer in G10 (falling over 7% including carry). On the majors, the euro was expected to gain and yet it fell, while the yen fell modestly as expected.
In EM, the Russian ruble, Polish zloty, and Colombian peso were expected to see the biggest gains. The ruble view was spot on – it gained over 18%. The other views did not do so well: the zloty fell, and the peso barely changed on the year. As for expected losses, the Chilean peso, Thai baht, and Taiwan dollar were expected to fall the most. The Chilean peso view was correct – it fell over 8%. But the baht view was wrong, it gained close to 8%. The Taiwan dollar was almost flat on the year.
On balance, then, the consensus got some big calls right (Russia and Chile), but equally got some big calls wrong (Sweden and Thailand). So we’ll give the analysts a grade “C”.
*we include carry in calculating returns.
Chart 1: Consensus Expected Appreciation over 2020: G10 FX vs USD (vs forwards)
Source: Macro Hive, Bloomberg
Chart 2: Consensus Expected Appreciation over 2020: EM FX vs USD (vs forwards)
Source: Macro Hive, Bloomberg
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)