September Forecast and outlook for GBP, EUR, USD, AUD, CAD

Good afternoon. We’ve seen Pound/Euro rates dip slightly today, after the Euro strengthened following comments from the European Central Bank president.  In today’s post, I’ll give an overview and forecast for the main currencies we trade, including Sterling, Euro, US Dollar, Australian Dollar and Canadian Dollar. For more information on our currency services or to get a quote, contact us today.

Pound Sterling forecast – Comments from chief EU negotiator Michel Barnier have prompted significant volatility for the Pound, fuelling speculation over the odds of a no-deal Brexit.

As Barnier indicated his belief that a deal could be agreed within six-to-eight weeks this drove GBP exchange rates sharply higher, in spite of continued opposition among some Conservatives to anything other than the hardest form of Brexit. While BoE Governor Carney agreed to extend his term until January 2020 this was not enough to give the Pound a significant boost, with investors disappointed that he will not serve a full eight-year term.

Until the final Brexit deal is signed off the Pound remains vulnerable to shifting market sentiment and political jitters. If the BoE signals a willingness to sit on its hands for longer in the face of an uncertain domestic outlook GBP exchange rates may struggle to hold onto any upward momentum.

Euro forecast –An unexpected dip in the headline Eurozone inflation rate put significant pressure on EUR exchange rates, undermining the prospect of greater European Central Bank (ECB) hawkishness. Investors were discouraged to find that inflation had eased from 2.1% to 2.0% on the year, with the slowdown suggesting that inflationary pressure within the currency union remains muted.

Worries over the Italian budget diminished, however, as politicians pledged the budget would not run afoul of EU spending rules. Greater signs of optimism from ECB policymakers could offer the single currency a solid boost against its rivals, especially if the central bank remains on course to wind down its quantitative easing programme.

US Dollar forecast – Surprisingly cautious words from Federal Reserve Chair Jerome Powell prompted the US Dollar to weaken sharply, dampening bets that the central bank will stick to a more aggressive course of monetary tightening. Even so, the losses seen in USD exchange rates were limited thanks to the wider sense of market risk aversion and escalating trade tensions between the US and China.

As the latest ISM manufacturing and composite indexes both pointed towards strong growth this has encouraged greater confidence in the domestic outlook, to the benefit of the US Dollar. After its bullish gains the US Dollar may struggle to push higher across the board, even in the face of fresh US tariffs on Chinese imports. If the Fed goes ahead and raises interest rates at its September meeting as anticipated, USD exchange rates could get a fresh boost.

Australian Dollar forecast – While July’s Australian unemployment rate unexpectedly dipped from 5.4% to 5.3% this was not enough to keep AUD exchange rates on a stronger footing for long. The notoriously volatile nature of the labour market data limited the positive impact of the improvement, especially as the change was largely fuelled by a decline in the participation rate. After Westpac surprised markets by raising mortgage rates out of step with the Reserve Bank of Australia (RBA) the chances of any fresh interest rate hike in the months ahead seem to have diminished.

As long as the trade dispute between the US and China continues to heat up this is likely to weigh on demand for the Australian Dollar. Any signs of weakness in domestic data could also drag AUD exchange rates lower, as this would give the RBA further incentive to remain on hold.

Canadian Dollar forecast – The unresolved issue of NAFTA re-negotiations has kept the Canadian Dollar under pressure in recent weeks, with the US threatening to impose auto tariffs in the event of there being no deal. Nevertheless, a sharp uptick in the Canadian consumer price index has given CAD exchange rates fresh cause for confidence.

With inflation running at the top of the Bank of Canada’s (BoC) target range the prospect of further interest rate hikes picked up, boosting the Canadian Dollar. Any widening of the Canadian trade deficit could weigh down CAD exchange rates, especially if NAFTA talks ultimately fail to yield an agreement.

On the other hand, a sustained recovery in oil prices, fuelled by decreasing OPEC production, may offer the Canadian Dollar a rallying point.

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