BUZZ-COMMENT-One bank’s forecast for USD and major FX in 2021

Oct 13 (Reuters)Societe Generale’s updated FX forecasts for 2021 recognise that Covid-19 has changed everything. Countries that had been timid about fiscal expansion have embraced it, and the Federal Reserve’s aggressive response should mean the dollar is beginning a downward adjustment, now that it’s lost its interest rate yield.

The bank expects EUR/USD to trade in a 1.20-1.30 range as the European Union’s recovery fund helps boost long-term confidence that monetary policy won’t be the “only game in town” to support growth.

Soc-Gen expects USD/JPY below 100.00 in 2021. Japanese policy delivered an undervalued JPY with the help of negative nominal rates, large-scale asset purchases and yield curve control, it said, but those policies only work if they aren’t adopted everywhere.

For GBP, the bank says its only protection is that in real terms, pessimism about the outlook for the currency has kept the pound weak. GBP/USD should gain more on a trade deal with the EU, it says, than it would fall on a no-deal Brexit – but the latter looks more likely.

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(Richard Pace is a Reuters market analyst. The views expressed are his own)

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