Nick Verdi, Research Analyst at Standard Chartered, explains that they recently turned more positive on the EUR and GBP versus the USD, although they expect GBP-USD downside beyond the short term.
“EUR-USD has strengthened from lows of around 1.06 in early April, a rally that we expect to continue on reduced political risks around the French presidential election, improving economic data and a less dovish European Central Bank (ECB). We changed our forecasts to 1.10 in Q2-2017 (from 1.00 previously), 1.11 in Q3-2017 (0.98), 1.12 in Q4-2017 (1.00), 1.13 in Q1-2018 (from 1.03), and 1.14 in Q2-2017 (from 1.06). A more-hawkish-than-expected US Fed cycle than currently priced in could undermine EUR-USD, although it would have to be much more aggressive than the two 25bps rate hikes that we expect by end-2017.”
“GBP-USD has seen a significant short squeeze from the March lows near 1.21. We expect further marginal upside into the 8 June UK general election and raised our forecast to 1.30 for Q2-2017 (from 1.18 previously). We maintain our view of GBPUSD downside beyond mid-year, albeit with a shallower trajectory. Early UK-EU Brexit negotiations suggest the two parties are poles apart on key issues. The risk of a ‘hard’ Brexit is real. We now forecast 1.26 for Q3-2017 (from 1.17), 1.24 for Q4-2017 (1.20), 1.25 for Q1-2018 (1.22), and 1.26 for Q2-2018 (1.22).”