Detailed forecasts for: Sterling (GBP), Euro (EUR), US Dollar (USD), Australian Dollar (AUD), Canadian Dollar (CAD).

Good afternoon. Regular readers will be aware that Brexit remains the main story for Sterling exchange rates, with the political uncertainty causing the Pound to fall to 18 month lows against the Euro and US Dollar. In today’s post, I’ll take a more detailed look at how some major currencies have performed recently, including GBP, EUR, USD, AUD and CAD.

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GBP Pound Sterling Forecast

The Pound was the biggest mover and shaker in currency markets last month as the UK currency experienced some major swings in movement amidst a flurry of Brexit developments. This has continued as we enter December, with Brexit uncertainty helping the Pound fall to 18-month lows.

Some of the key developments included the sign off on a controversial withdrawal deal between the UK and EU and subsequent cabinet resignations, as well as a political declaration outlining a future relationship, and a gloomy Brexit analysis from the Bank of England (BoE). This culminated in Theresa May calling off the meaningful vote, which has created even more uncertainty about the Brexit process.

The risk that the UK could crash out of the EU in a no-deal Brexit scenario is increasing, likely to result in the Pound facing considerable volatility in the coming weeks.

Those that need to convert GBP to another currency may wish to explore options to remove their exposure, such as a ‘Forward Contract’ to freeze the current rate for up to 12 months.

EUR Euro Forecast

The Euro struggled throughout the first half of November, with the single currency coming under considerable pressure due to a dispute over Italy’s 2019 budget. This led the European Commission to rule that Rome’s budget broke EU fiscal regulations and that it would begin disciplinary procedures in response.

Further dampening EUR sentiment was the release of the Eurozone’s latest GDP figures, which revealed growth in its largest economy – Germany – actually contracted in the third quarter.

While the Euro made some headway later in the month on the back of some hawkish comments from European Central Bank (ECB) President Mario Draghi, EUR ultimately remained subdued as Eurozone business growth was shown to have struck a two-year low, exacerbating fears of a slowdown in the bloc in the second half of 2018.

Looking ahead, the ECB’s December policy meeting is likely to be the main focus for investors in the coming weeks, with the bank’s tapering of its stimulus programme likely to be a key focus point for EUR investors. However markets may remain wary of this month’s PMI figures, with another slump in private sector activity likely confirming analysts’ slowdown fears.

USD US Dollar Forecast 

Outside of a small setback following the US midterm elections, the US Dollar remained in demand throughout the first half of November as growing global uncertainty led investors to flock to the safe-haven currency.

These gains were trimmed in the latter half of the month however following some dovish remarks from Federal Reserve Chair Jerome Powell, as he suggested US interest rates are nearing ‘neutral levels’.

An expected rate hike from the Fed in December is unlikely to have much of an impact on USD exchange rates having already been largely priced in by investors.

Instead the focus is expected to be on the central bank’s forward guidance for the coming year, with any confirmation of a slowdown in the pace of rate hikes likely to dampen market sentiment. However this could be offset if US economic indicators remain strong, and point to a robust start to 2019 for the US economy.

AUD Australian Dollar Forecast 

The Australian Dollar was subject to some volatility last month as shifts in market risk appetite proved to be the main catalyst for movement. This resulted in the ‘Aussie’ softening through mid-November as investor confidence was rocked by a rout in equity markets as well as flaring trade tensions between the US and China.

However AUD moved sharply higher at the turn of the month as President Trump and his Chinese counterpart President Xi agreed to a tariff truce at the G20 summit in Argentina, resulting in an easing of trade tensions.

It’s unclear whether the Australian Dollar will be able to carry this momentum forward into 2019 however, with a weaker-than-expected third quarter GDP reading leading to speculation the Reserve Bank of Australia’s next rate move could be a cut rather than a hike.

CAD Canadian Dollar Forecast

The Canadian Dollar has proved highly sensitive to movement in oil prices over the last month, leading the currency to lose out to most of its peers after the commodity was hit by a major sell-off. The blow was softened somewhat by the release of some strong domestic inflation figures, on hopes this could accelerate the Bank of Canada’s pace of monetary tightening.

However despite this the BoC voted to keep interest rates on hold in December, with the bank’s cautious tone being taken as a sign the BoC may hold off on a rate at the start of 2019 as well, an outcome that could see the ‘Loonie’ slip in the months to come.

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