Nordea forecasts: near-term range trading, dollar to slide during 2021 amid increased global risk taking

Nordea looks at the outlook for major currencies with forecasts extending out to the end of 2022. After an initial period of range trading, the bank expects that the dollar will weaken with the euro-to-dollar rate trading well above 1.2000. The yen and Swiss franc are also as losing ground as demand for defensive assets tumbles.

Short-term range trading to give way to dollar losses

Nordea expects euro and dollar forces to be balanced in the short term as central banks consider further action.

EUR/USD is likely to get caught between two stools over the next couple of months as both the Fed and the ECB will enact more easing.”

The ECB will announce a further easing of monetary policy at the December meeting. Nordea expects that the bank will increase the PEPP on purchases and also concentrate on providing cheap financing to the banks.

It does not expect that interest rates will be cut and there should not be major downside pressures on the Euro from the decision.

“For now, 1.20 is still the line in the sand, so range trading in EUR/USD will likely be the name of the game short term.”

It considers the most likely outcome is that range trading will continue in EUR/USD, potentially within a 1.16-1.20 band.

“A continued focus on the US double deficit, a synchronised global upturn in growth and the smaller rates spread between the USD and the rest of the world, will likely leave the USD vulnerable against most peers during 2021.”

The bank forecasts the euro-to-dollar rate at 1.2600 at the end of 2021, but the dollar-to-yen rate is forecast at 110.00 which indicates a slide in demand for defensive assets including the yen and Swiss franc.

Scandinavian currencies expected to strengthen, Pound Sterling to regain losses

Nordea notes that several central banks have considered the possibility of negative interest rates including the Bank of England, Reserve Bank of Australia and Reserve Bank of New Zealand.

“If all of the Commonwealth central banks turn towards negative interest rates, then the SEK and the NOK will slowly but surely climb the carry ladder over the coming 12-18 months. A policy rate of 0% may suddenly look like a high-yielding currency in comparison.”

There is no specific Sterling commentary, but the UK is forecast to weaken on a 3-month view before regaining ground steadily during 2021 and 2022. The dollar-to-pound rate is forecast to strengthen to above 1.50 by the end of 2022.

Chinese yuan to make net gains

The end of the President Trump era is seen as benefitting the Chinese currency.

“Joe Biden’s trade policy towards China will likely also prove to be more benign, so China may be one of the winners of the US election. We remain upbeat on the CNY versus the USD and expect levels around 6.30 during 2021.”

Latest exchange rate forecast table for 2020. 2021 and 2022

Currency Pair	Spot exchange rate	3 months	Mid-2021	End-2021	End-2022
EUR/USD	1.18	1.17	1.23	1.26	1.30
USD/JPY	104	107	110	110	112
GBP/USD	1.31	1.26	1.37	1.47	1.55
EUR/GBP	0.89	0.93	0.90	0.86	0.84
EUR/CHF	1.08	1.08	1.10	1.10	1.12
AUD/USD	0.73	0.73	0.75	0.77	0.78
NZD/USD	0.69	0.68	0.68	0.72	0.73
USD/CAD	1.31	1.32	1.31	1.27	1.25
USD/CNY	6.59	6.60	6.40	6.30	6.20
EUR/NOK	10.75	10.60	10.30	10.10	9.75
EUR/SEK	10.22	10.25	10.00	10.00	9.90