Updated FX Forecasts EUR/USD, SEK, NOK, GBP & JPY - SEB Research
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Updated FX Forecasts
EUR/USD, SEK, NOK, GBP & JPY
1Our global macro scenario
A deep recession is inevitable
The COVID-19 pandemic has rapidly changed forecasting conditions. Due
to lockdowns around the world a deep economic recession is inevitable.
PMI indicators have plunged in March to levels from the GFC in 2008.
The service sector seems to be more severely hurt, while the
manufacturing sector so far shows some resilience.
One fundamental difference compared to earlier crises is that both the
demand and supply sides of the economy have been hit by the shock this
time.
In Q1 the last three weeks of March will leave their mark, but most likely
the really dramatic decline will occur in Q2.
At present, we see possible GDP declines in the range of 5-7 per cent in
Q2, calculated as seasonally adjusted q/q-figures. In annualized terms we
would thus see GDP declines in the range of 20-30 per cent. This is a
significantly steeper decline than we saw during the worst period of the
Lehman crisis.
Our main scenario is that GDP in the 36 OECD countries will fall by
2.5% in 2020 as a whole; a downward revision by around 4 percentage
points compared to our February forecast.
The scenario is based on the assumption that the situation will to some
extent begin to normalize in a few months time. The subsequent
recovery will be gradual with a rebound in GDP growth to 3.5% in 2021.
Economic policy makers have reacted with speed and determination.
Both governments and central banks have realized that the situation is
serious and have been keen on wasting no time. In this respect, the
situation is completely different from the Lehman crisis.
2EUR/USD
A traditional reaction after all..
While prospects for lower Fed rates and unwinding of carry positions
dominated briefly a month ago and caused the USD to weaken
temporarily, the defensive qualities of being the global reserve currency
has dominated in recent weeks.
A sharp rise in global demand for USD liquidity and the fact the US is the
safest place to park capital in bad times make the USD attract capital
inflows. As long as Covid-19 uncertainty persists the USD will continue to
strengthen.
That being said, there will be days now and then when market sentiment
improves on either news on new stimulus measures or positive news
related to the virus, which will trigger hefty moves in the opposite
direction. The trend for the USD will be upward in the coming month but
volatility will remain high against the currencies that has fallen the most
and could result in large deviations from forecasts.
With rate differences between currencies now being completely
eliminated the USD is likely to suffer when/if the situation starts to
normalize and the demand for USD liquidity declines.
30 mar 1M Q2 20 Q4 20 Q4 21 LTFV*
EUR/USD 1.11 1.06 1.08 1.14 1.20 1.17
EUR/SEK 11.04 11.50 10.75 10.20 9.80 9.74
EUR/NOK 11.69 12.00 11.25 10.35 10.00 9.36
USD/SEK 9.98 10.85 9.95 8.95 8.17 8.31
USD/NOK 10.57 11.32 10.42 9.08 8.33 7.99
*Based on the SEB LTFV model
3EUR/USD
The long-term outlook for the USD not as bright
Obviously, the big rate differential in the past made it expensive for euro
based exporters to hedge revenues in USD. With the EUR/USD now trading at a
long-term attractive level while the cost of hedging USD-exposures has
declined sharply, we expect to see increased hedging activities among euro-
based exporters if the situation starts to normalize.
After the last announcement of USD 2tn in government support to save the
economy the long-term risks for the USD have increased.
– Increased public spending will be very negative for US current account
deficit, which already was a problem. Now it will continue to grow, which
means an even bigger need to attract foreign funding.
– The government debt situation has gone from bad to worse. During the
GFC increased spending and lower tax revenues pushed the gross debt
from 65% of GDP to well above 100% and this time it could be the same.
– It is quite clear from the last couple of years that lowering the public debt
is not a priority for Congress or the President. At some point there is a
risk that foreign investors say, hey enough, and cut back on their
important funding.
The risk of policy mistakes have increased substantially after the gigantic
support to save the economy in recent weeks. What if the situation turns out
better than expected? Are the Fed and the government prepared to cut back
on the support or otherwise this could easily turn inflationary?
The USD is, for good reasons, long-term overvalued against the euro at the
current level. Fair-value is probably around 1.17-1.20 and this is probably
where the currency pair will head quite rapidly if the situation starts to
normalize.
4SEK
The SEK is vulnerable when markets are under severe stress
Although the SEK has fallen against most major currencies and in particular the
USD the last couple of weeks, it has clearly been much more resilient this time
than in 2008/09.
One explanation might be the fact that due to its low rates it has worked as a
funding currency, which means it was now bought when positions were being
closed down, just like other low yield currencies. This rarely lasts, which probably
is why it has been weaker than initially in recent weeks.
In addition it has been expensive for Swedish institutional investors and
corporates to hedge their foreign currency exposure and probably they had much
more open FX exposure as a result. Back in 2008, removing FX-hedges was one
reason for the sharp depreciation of the SEK.
As long as financial markets worry for a severe global recession the SEK will be
vulnerable. Most likely it will remain more resilient than during the GFC though,
and 12.00 vs the euro seems far away today, but should not be ruled out.
If and when risk appetite improves it should benefit the SEK as well, but not as
much as other smaller currencies.
As market conditions for hedging USD exposures for Swedish investors and
exporters have changed dramatically with lower US rates should trigger hedging
related SEK-positive capital flows as soon as markets begin to normalize and the
uncertainty around today goes away.
30 mar 1M Q2 20 Q4 20 Q4 21 LTFV*
EUR/SEK 11.04 11.50 10.75 10.20 9.80 9.74
USD/SEK 9.98 10.85 9.95 8.95 8.17 8.31
NOK/SEK 0.94 0.96 0.96 0.99 0.98 1.04
GBP/SEK 12.40 12.50 12.22 12.00 11.95 12.31
JPY/SEK 9.25 10.23 9.22 8.06 7.23 8.47
5
*Based on the SEB LTFV modelNOK
What started with a sharp fall in the oil price turned into panic
Being a small and oil related currency the NOK crashed completely two weeks ago
as liquidity dried up and the market turned one-sided. It pushed EUR/NOK to an all-
time high of above 13.00 before the NOK stabilized slightly towards the end of last
week, after Norges Bank threatened it could begin to intervene in the FX market to
stabilize the NOK.
The trend in EUR/NOK, and most other NOK-crosses, is currently defined by the oil
price. The relationship between oil and the NOK tends to strengthen in times of a
sharply falling oil price, when the correlation on weekly changes usually is between
0.75 and 1. We expect downward pressures on oil to continue near-term and the
price might well dip below $30/bl. At $20/bl.
Current level of around 11.60 in the EUR/NOK is completely out of sync with the
fundamentals of the Norwegian economy and simply a consequence of panic in an
illiquid market. Long-term this level is of course unsustainable, but that being said,
the short-term outlook remains highly uncertain.
Norges Bank’s readiness to support the NOK via purchases in the FX market should
provide some sort of ceiling for EUR/NOK in the short-term. Daily NOK-purchases
by Norges Bank have increased to NOK 1.6bn, which should give some further
support to the NOK as the panic vanes.
Although purchases probably are frontloaded additional government support to
the economy could demand an even higher amount of daily NOK-purchases in
coming weeks.
30 mar 1M Q2 20 Q4 20 Q4 21 LTFV*
EUR/NOK 11.71 12.00 11.25 10.35 10.00 9.36
USD/NOK 10.59 11.32 10.42 9.08 8.33 7.99
NOK/SEK 0.94 0.96 0.96 0.99 0.98 1.04
GBP/NOK 13.16 13.04 12.78 12.18 12.20 11.84
*Based on the SEB LTFV model 6GBP
Brexit woes still contribute to weaken the GBP
The GBP has suffered enormously since the outbreak of the coronavirus started to hurt the
global risk sentiment with falling equity markets. Since there was a sharp increase in the
demand for USD, the GBP has been one of the weakest G10-currencies.
Brexit uncertainty is still part of the explanation. Since the UK left EU on 31 January it is
the transition period, where basically nothing has changed. However, the transition period
will end on 31 December this year and has to be replaced by a comprehensive trade
agreement. If this fails the risk is that there will be a hard Brexit by the end of this year.
Naturally the coronavirus has increased this risk.
The UK economy was already weak due to Brexit uncertainty and with the corona outbreak
on top of it recession risks have increased dramatically. Not the least as buffers among
households are limited with a low savings rate.
The UK has suffered from a large current account deficit for almost 20 years, which means
it has a significant debt to the rest of the world and has to rely on foreign funding. In times of
increased stress, when investors cut back on exposures, this is a bad situation for a currency.
The BOE is one of the central banks that has lowered rates as much as it can in recent weeks
to 0.1%, which has removed the positive rate differentials against other currencies. Just like
other CBs it has also announced significant bond purchases by £200bn.
The GBP is long-term undervalued, but for good reasons. As long as there is uncertainty
related to the corona outbreak and its consequences on the economy the GBP will remain
weak as the UK economy is vulnerable. However, we still believe there will be some sort of
trade deal in place by the end of this year, or otherwise the British government will extend
the transition period to prevent a hard Brexit. This will help the GBP to recover in the second
half of this year.
30 mar 1M Q2 20 Q4 20 Q4 21 LTFV*
EUR/GBP 0.89 0.92 0.88 0.85 0.82 0.79
GBP/USD 1.24 1.15 1.23 1.34 1.46 1.48
GBP/SEK 12.41 12.50 12.22 12.00 11.95 12.31
GBP/NOK 13.15 13.04 12.78 12.18 12.20 11.84 7
*Based on the SEB LTFV modelJPY
The defensive qualities will keep it strong vs most G10
The USD/JPY has shown extreme volatility since the Covid-19 started to scare
financial markets more severely by mid-February. In just a few weeks it has moved
from 112 down to 103.5, all the way back to above 111 and then down again to
where it currently trades at around 108.
This behavior is somewhat different from the reactions in the past, although
compared with other currencies than the USD the JPY has demonstrated its
defensive qualities yet again, being one of the best performing currencies since the
global spread of the Covid-19.
• Japan’s economy was weak already before this corona crises started and GDP
growth was negative in Q4. The Japanese government works on a stimulus
package to be ready in April that could be worth as much as 10% of GDP to combat
the hit to the economy from the coronavirus. Among the things that could be
included are cash payouts to households, credit lines and guarantees
• The rescue package may attract new capital inflows as it will need to be funded.
• As long as uncertainty about the coronavirus continues to weigh on financial
markets the JPY is likely to remain supported from repatriation of capital. These
flows could grow should the virus hit Japan harder with further consequences for
the economy.
• However, the latest move lower in USD/JPY might be temporary and related to
year-end flows as the new fiscal year in Japan begins on 1 April.
30 mar 1M Q2 20 Q4 20 Q4 21 LTFV*
USD/JPY 108 106 108 111 113 98
EUR/JPY 119 112 117 127 136 115
JPY/SEK 9.25 10.23 9.22 8.06 7.23 8.47
JPY/NOK 9.82 10.68 9.65 8.18 7.37 8.14
8
*Based on the SEB LTFV modelFX forecasts
FORECASTS
FX 30 mar 1 mth Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21
EUR/USD 1.11 1.06 1.08 1.12 1.14 1.17 1.18 1.19 1.20
EUR/SEK 11.04 11.50 10.75 10.50 10.20 10.10 10.00 9.90 9.80
EUR/NOK 11.72 12.00 11.25 10.75 10.35 10.10 10.00 10.00 10.00
EUR/CHF 1.06 1.06 1.07 1.09 1.10 1.12 1.13 1.13 1.14
USD/JPY 108.1 106 108 110 111 111 112 112 113
USD/CAD 1.42 1.38 1.36 1.30 1.30 1.29 1.29 1.28 1.28
EUR/GBP 0.89 0.92 0.88 0.87 0.85 0.84 0.84 0.83 0.82
AUD/USD 0.61 0.59 0.56 0.58 0.60 0.62 0.64 0.66 0.70
NZD/USD 0.60 0.58 0.56 0.57 0.59 0.61 0.63 0.65 0.69
EUR/PLN 4.54 4.59 4.52 4.45 4.40 4.30 4.25 4.20 4.20
EUR/HUF 358 360 358 345 340 335 345 350 350
USD/TRY 6.56 6.60 6.70 6.60 6.75 7.00 7.30 7.40 7.40
USD/RUB 79.9 82 81 78 77 73 68 68 68
USD/CNY 7.10 7.12 7.15 7.20 7.18 7.16 7.14 7.12 7.10
USD/KRW 1225 1249 1273 1320 1297 1274 1251 1228 1200
USD/SGD 1.43 1.44 1.45 1.47 1.45 1.44 1.42 1.41 1.39
USD/BRL 5.10 5.25 5.20 5.15 5.10 5.05 5.00 5.00 4.95
USD/INR 76 77 78 80 79 78 77 76
30 mar 1 mth Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21
EUR/SEK 11.04 11.50 10.75 10.50 10.20 10.10 10.00 9.90 9.80
USD/SEK 9.99 10.85 9.95 9.38 8.95 8.63 8.47 8.32 8.17
GBP/SEK 12.42 12.50 12.22 12.07 12.00 12.02 11.90 11.93 11.95
NOK/SEK 0.94 0.96 0.96 0.98 0.99 1.00 1.00 0.99 0.98
JPY/SEK 9.24 10.23 9.22 8.52 8.06 7.78 7.57 7.43 7.23
CAD/SEK 7.05 7.86 7.32 7.21 6.88 6.69 6.57 6.50 6.38
AUD/SEK 6.11 6.37 5.57 5.44 5.37 5.35 5.42 5.49 5.72
CNY/SEK 1.41 1.52 1.39 1.30 1.25 1.21 1.19 1.17 -
CHF/SEK 10.44 10.85 10.05 9.63 9.27 9.02 8.85 8.76 8.60
USD/NOK 10.61 11.32 10.42 9.60 9.08 8.63 8.47 8.40 8.33
GBP/USD 1.24 1.15 1.23 1.29 1.34 1.39 1.40 1.43 1.46
EUR/JPY 119 112 117 123 127 130 132 133 136
EUR/NOK 11.72 12.00 11.25 10.75 10.35 10.10 10.00 10.00 10.00
USD/NOK 10.61 11.32 10.42 9.60 9.08 8.63 8.47 8.40 8.33
GBP/NOK 13.19 13.04 12.78 12.36 12.18 12.02 11.90 12.05 12.20 9This report is produced by SEB for institutional investors only. All infor-
mation has been compiled in good faith from sources believed to be re-
liable. However, no representation is made as to its accuracy or com-
pleteness. No liability is accepted for any direct or consequential loss
resulting from reliance on this document. Changes may be made to
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