In 2023, the forex market grew at a CAGR of almost 6.6%, even with major currency pairs showing varying performance across the board. While AUD/USD increased by 3.7%, GBP/USD did not increase, only touching 0.19% growth in 2023. So, what does 2024 have in store for the forex market?
Let’s take a look at the top forex predictions for 2024.
Forex outlook for 2024
According to the global bank HSBC, it is predicted that the US Dollar will become much weaker by the middle of 2024, impacting forex trades and the global economy. A significant drop in the Dollar to Yen exchange in 2024 could also be possible after the forex pair moves sideways during the beginning of the year. These forecasts give traders important information for making plans and decisions.
The Federal Reserve, a big player in the US, is expected to avoid cutting interest rates despite expectations. The European Central Bank will likely maintain a strong stance, which could strengthen the Euro against the Dollar. However, there's a chance of a global recession; if that happens, the US Dollar might become more attractive to traders.
Three important things will shape the global economy and the forex market:
- US Federal Reserve’s decision about interest rates could impact the USD Dollar and global forex market
- The ongoing shift from coal and oil to natural gas for energy will also impact economies and their currencies.
- The tension between the US and China could make Asian markets more appealing.
Forex trends for 2024 to watch out for
Chinese Yuan to grow
Recent economic stimulus measures in China have injected optimism into the potential recovery of the economy, leading economists to maintain their 2024 growth forecasts at 4.5%. Despite forecasting an expansion of 5.2%, concerns persist regarding the appreciation of the currency in 2024.
The main reason behind the tensions is the Chinese government's rare budget expansion, including a 1 trillion yuan ($137 billion) sovereign debt package, which aims to prevent a sharp growth slowdown.
However, Morgan Stanley predicts a subpar growth trajectory and emphasizes the need for more stimulus and reforms. After reviewing the third-quarter GDP data, Morgan Stanley raised its growth forecast for China to 5.1% for the current year (2023), up from a prior low of 4.8%, while maintaining a steady projection of 4.2% for 2024. These adjustments were retained even after the announcement of the economic stimulus.
The People's Bank of China may adjust the reserve requirement ratio to5% to support government bond sales, expecting a 25 basis points reduction by year-end. Lingering challenges include a fragile economic recovery, property sector risks, local government debt, and global tensions.
Swiss Franc to strengthen and then reverse
Moving into 2024, there is expected to be a recovery in global demand, offering a potential boost to Swiss exports. However, consumer demand may lose momentum due to economic slowdowns impacting the labor market. Unemployment is projected to rise from an average of 2.0% in 2023 to 2.3% in 2024.
In an unexpected move, the Swiss National Bank (SNB) maintained its policy rate at 1.75% during the quarterly rate-setting meeting on September 21, 2023. It is now assessed that 1.75% marks the conclusion of this tightening cycle, which will continue in the coming few years, including 2024. It is also predicted that the SNB will conclude its strategy of bolstering the CHF through foreign exchange sales in Q1 of 2024. This approach has been a fundamental element of the SNB's effective measures in combating inflation.
The SNB has maintained expectations of an inflation rebound beyond the current period. With projections exceeding 2% by late 2023 and predicted to touch 2.3% in 2024, there has been a downward adjustment in inflation forecasts for the latter half of 2024.
The revised outlook indicates an average inflation of 2.2% for 2023 and 2024, followed by an even reduced estimate of 1.9% for 2025, compared to the previous forecast of 2.1%. This downward shift in medium-term inflation expectations serves as a notably dovish signal, hinting that the decision to pause rate hikes in the present could extend into forthcoming meetings.
Despite these challenges, the expert group expects the GDP growth adjusted for sporting events to be 1.2% in 2024, marking below-average growth for two consecutive years but avoiding a recession. Notably, the forecast assumes no widespread production losses due to an energy shortage in the winter of 2023/24.
Australian Dollar to increase against USD
Looking into 2024, Westpac has predicted an AUD/USD exchange rate of 0.76 by June 2024, while NAB anticipated 0.78 to the US Dollar by the same period. These projections mark an increase from previous forecasts, demonstrating optimism about the Australian Dollar's recovery. Ongoing economic developments, geopolitical dynamics, and the resolution of global uncertainties will likely shape the Australian Dollar's trajectory against the USD in 2024.
The current trading level of the AUD/USD stands at approximately 0.64 as of November 2024, occasionally dipping even lower. National Australia Bank (NAB) economists provide insights into the pair's prospects, anticipating a gradual increase over the next year (2024).
Regarding rates, the Reserve Bank of Australia (RBA) implemented a further 25 basis points hike in interest rates in November, followed by a period of rate stability until the latter half of 2024. Their analysis also suggests one more CPI inflation increase in 2024, reaching a peak of 3.5%.
BNP Paribas envisions the AUD/USD pair concluding the 2023 year around 0.68, with a subsequent upward trajectory throughout 2024, reaching approximately 0.70 by the end of 2024. This forecast implies a positive trend for the Australian dollar against the US dollar, influenced by RBA's monetary policy decisions and broader economic factors. It is also predicted that inflation for the country will remain above 3%.
Canadian Dollar to increase in the first half
Analysts are increasingly optimistic about the Canadian Dollar's prospects in 2024, indicating a shift in bullish forecasts. The median projection from nearly 40 currency analysts suggests a potential 2% strengthening the currency to 1.31 per US dollar, equivalent to 76.34 US cents, within the first half of 2024.
By November 2024, the Canadian Dollar is anticipated to rally further to 1.42, marking a 3.6% gain. Scotiabank's Chief Currency Strategist, Shaun Osborne, attributes this positive outlook to expectations of a broad softening of the US Dollar over the next 12 months as the Federal Reserve's tightening cycle potentially reverses. By Q3 of 2024, CAD’s rate is predicted to revolve around 1.37. However, as per an OECD report, the Canadian economy growth will remain below 1.4% overall in 2024.
Investors anticipate the Fed's transition from tightening to potential rate cuts in the first half of 2024, which could benefit the global economy. Given its sensitivity to global economic prospects, Canada, being a significant exporter of commodities, including oil, is likely to gain.
As per a Deloitte report, the Bank of Canada, aligning with the Fed's moves, is expected to ease interest rates in 2024. Despite this, the Canadian Dollar's support is foreseen from domestic factors and a weaker USD due to investor diversification and an improving global risk environment as central banks globally pivot away from tightening monetary policy.
The recent increase in Canada's benchmark interest rate to a 22-year high of 5% by the Canadian central bank adds another layer to the currency's positive outlook in 2024, with the potential for further tightening if inflation persists above the 2% target. Upcoming employment data for July could offer insights into expectations for additional rate hikes, further shaping the Canadian Dollar's trajectory in the first half of 2024.
UK’s GBP might reverse its downtrend
The UK faces challenges, including a potential stagflation scenario and modest economic growth in 2024, affected by high inflation and restrictive monetary policy. The Pound's fundamental outlook is gloomy, with muted growth expected into 2024.
The Sterling may weaken further through early 2024, possibly reaching 1.17 or below and then reverse. RBC projects the Pound to Dollar sliding to 1.17 by the end of 2023 and reaching lows of 1.11 in mid-2024. Even though the forecasts from different institutions vary, they suggest the same outlook for GBP in 2024 – A potential downtrend till the middle of 2024 and then a likely reversal.
Inflation, although high, is projected to fall back to the 2% target in Q2 2024, potentially signaling an end to BoE rate hikes. Consequently, the 10-year Treasury yield has surged above 4.28%, reaching levels not seen since 2007 and potentially clearing the path for a 5.0% rate in the coming months, strengthening the currency further. As per Gov Capital, the forecast for the future currency rate for GBP/USD is projected to reach 1.99 in 2024.
The USD to remain mildly bullish
In 2024, the USD is expected to maintain a mild bullish trend. The key factors influencing this projection are rooted in the evolving dynamics of the global economy and the anticipated shifts in US monetary policy. As per Goldman Sachs, tighter interest rates (between 4%-5% by December 2024) will catch up with the US economy, resulting in a modest growth rate of 0.5%-1%. In response to this, the Fed, adhering to its dual mandate of addressing inflation and maximizing employment, could implement rate cuts, with a projected 150 basis points of easing starting in the second quarter of 2024. As per a report by JP Morgan, inflation will remain high in 2024, above 3%.
Moreover, a lower US interest rate environment is expected to support the recovery of growth currencies akin to growth stocks such as technology and real estate. The overall baseline view for 2024 suggests a strengthening bear trend for the Dollar with a neutral stance confirmed by JP Morgan & Co. Compared to year-end 2024 forwards, various currencies, ranging from China's renminbi to Swedish Krona, could be 2% and 13% firmer against the Dollar, respectively.
However, these projections are contingent on several assumptions, and potential scenarios could impact outcomes.
Navigate shifts and opportunities in the global forex market
The 2024 forex outlook suggests potential shifts in currency trends from bullish to bearish and vice versa. Overall, the stance looks slightly bullish based on the predictions. The landscape may favor greater diversification among investors for several currency pairs due to expectations of US interest rate cuts. As we navigate 2024, monitoring these variables will be crucial in understanding and adapting to the evolving trends in Forex markets. It's just as important to take the necessary risk management measures.
*Past performance is not a reliable indicator of future performance.
