Third Quarter of 2016
EXCHANGE RATE FORECASTS
EXCHANGE
EXCHANGERATE
RATE
FORECASTS
FORECASTS
V
Stuart Hoffman
Chief Economist
Gus Faucher
Deputy Chief Economist
William Adams
Senior Economist
Kurt Rankin
Economist
Mekael Teshome
Economist
AFTER THE BREXIT SHOCK, COMMODITY EXPORTER AND
EMERGING MARKET CURRENCIES LOOK TO STRENGTHEN
The pound plunged after a surprise majority of British voters supported leaving the EU in the UK’s June 23
referendum, but the vote’s broader fallout is so far limited. The UK’s choice of Brexit moderate Theresa May
as Prime Minister will reduce tail risks to the UK and EU economies. The Bank of England will likely cut
interest rates and may restart its quantitative easing program in the second half of 2016, and other major
foreign central banks may increase monetary stimulus as well. The European Central Bank is likely to extend
the end-date of its quantitative easing program 6-12 months beyond its current March 2017 minimum, and
to expand the categories of assets it buys. In Asia, the Bank of Japan may increase monetary stimulus in the
third quarter of 2016 by increasing purchases of exchange traded funds, lowering the policy rate further into
negative territory, or both. In the US, Brexit provides the Federal Reserve one more reason to delay the next
federal funds rate hike, which seems most likely in December 2016, a year after the initial hike. Renewed
divergence between foreign central banks set to intensify monetary stimulus and the Federal Reserve which
is likely to very gradually raise U.S. rates favors a stronger dollar vis-à-vis the pound, euro, and yen, but
markets could begin to anticipate a taper of easing in the Eurozone and Japan in 2017. For now, easy money
in advanced economies favors stronger currencies of emerging markets and commodity-exporting
economies, supporting the Australian dollar, Brazilian real, Canadian dollar, and Mexican peso. The Chinese
yuan’s managed depreciation seems likely to continue. The Indian rupee may depreciate if India appoints a
less independent central bank governor at the end of the current governor’s term in September.
EXCHANGE RATE FORECASTS
130
1.2
125
1.1
120
1.0
0.8
105
1.5
Brazilian real per U.S. dollar
3.5
PNC
Forecast
0.9
110
95
4.5
4.0
PNC Forecast
115
100
U.S. dollars per Australian dollar
U.S. dollar broad index
Jan. 1997 = 100
Canadian dollars per U.S. dollar
3.0
0.7
2.5
0.6
2.0
7.4
7.2
1.4
PNC Forecast
1.5
Chinese yuan per U.S. dollar
U.S. dollars per euro
1.4
7.0
1.3
6.8
PNC Forecast
1.2
1.3
PNC Forecast
6.6
1.2
6.4
1.1
1.0
1.8
PNC Forecast
6.0
U.S. $ per U.K. pound sterling
1.7
80
1.0
Indian rupees per U.S. dollar
70
1.5
65
1.4
60
1.3
PNC Forecast
55
130
Japanese yen per U.S. dollar
125
75
1.6
1.2
1.1
6.2
PNC
Forecast
120
115
110
105
100
PNC
Forecast
EXCHANGE RATE FORECASTS
1,275
1,250
1,225
1,200
1,175
1,150
1,125
1,100
1,075
1,050
1,025
1,000
20 dollar
Mexican pesos per U.S.
Korean won per U.S. dollar
Mexican pesos per U.S. dollar
19
18
17
PNC Forecast
16
PNC Forecast
15
14
13
12
Table and chart sources: Reserve Bank of Australia, Bank of Canada, China Foreign Exchange Trading Center, Banco Central do Brasil,
Bank of Japan, European Central Bank, Reserve Bank of India, Bank of Korea, Bank of England, CEIC, The PNC Financial Services Group.
Visit http://www.pnc.com/economicreports to view the full listing of economic reports published by PNC’s economists.
Disclaimer: The material presented is of a general nature and does not constitute the provision of investment or economic advice to any
person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions and forecasts expressed herein are
subject to change without notice. Relevant information was obtained from sources deemed reliable. Such information is not guaranteed
as to its accuracy. You should seek the advice of an investment professional to tailor a financial plan to your particular needs. © 2016
The PNC Financial Services Group, Inc. All rights reserved.