BNP Paribas 2023-2024 Exchange Rate Forecasts
Capital Outflows will Undermine the Dollar
A starting point for the BNP market analysis is that it considers the dollar is notably overvalued in global markets, especially against the yen.
It adds; “The USD on a G10 trade-weighted index is trading almost 2 standard deviations (about 25%) rich relative to our estimates of its long-term fair value, as captured by the BNP Paribas FEER.”
The debate surrounds whether there will be a trigger for the overvaluation to be reversed.
BNP expects a significant shift in capital flows over the next few months which will have an important impact on currency rates.
According to the bank; “The normalization of global yields should continue to encourage repatriation by Eurozone and Japanese investors, who are overweight US assets.”
BNP also considers that unease over US equity valuations will encourage a flow of funds out of the US into the rest of the world
It adds; “Coupled with FX-hedge ratios at low levels, we see space for significant USD selling.
Overall, BNP places less emphasis on Federal Reserve rate cuts in forecasting that the dollar will lose ground.
Euro Can Secure Capital Inflows
The bank maintains a broadly constructive stance towards the Euro.
It expects that the ECB rate hikes and quantitative tightening will encourage foreign inflows and domestic repatriation.
Although BNP expects that energy prices will strengthen, it does not expect a return to 2021 levels.
Overall, the bank expects gradual EUR/USD gains over the medium term.
Capital Outflows will Undermine the Dollar
A starting point for the BNP market analysis is that it considers the dollar is notably overvalued in global markets, especially against the yen.
It adds; “The USD on a G10 trade-weighted index is trading almost 2 standard deviations (about 25%) rich relative to our estimates of its long-term fair value, as captured by the BNP Paribas FEER.”
The debate surrounds whether there will be a trigger for the overvaluation to be reversed.
BNP expects a significant shift in capital flows over the next few months which will have an important impact on currency rates.
According to the bank; “The normalization of global yields should continue to encourage repatriation by Eurozone and Japanese investors, who are overweight US assets.”
BNP also considers that unease over US equity valuations will encourage a flow of funds out of the US into the rest of the world
It adds; “Coupled with FX-hedge ratios at low levels, we see space for significant USD selling.
Overall, BNP places less emphasis on Federal Reserve rate cuts in forecasting that the dollar will lose ground.
Euro Can Secure Capital Inflows
The bank maintains a broadly constructive stance towards the Euro.
It expects that the ECB rate hikes and quantitative tightening will encourage foreign inflows and domestic repatriation.
Although BNP expects that energy prices will strengthen, it does not expect a return to 2021 levels.
Overall, the bank expects gradual EUR/USD gains over the medium term.