• International Financial Outlook Report – January 2017

    Summary of forecast changes

    • Our central forecasts for US, UK and euro area policy rates have not changed. We continue to look for the Bank of England to keep Bank Rate unchanged at 0.25% in 2017 and 2018, while ECB asset purchases are on a preset course this year, with monthly buying set to be reduced from €80bn to €60bn from April. We anticipate the US Federal Reserve will raise interest rates twice this year to 1.25%.
    • Long-term interest rates forecasts have been nudged marginally lower. We expect US 10-year Treasury yields at 2.7% at end-2017, rising to 3.0% by the end of 2018. Targets for UK 10-year gilt and German 10-year bund yields have also been reduced slightly to 1.6% and 0.6%, respectively.
    • Our near-term projection for the US dollar against other major currencies has been revised higher, while medium term forecasts are broadly unchanged. We look for GBP/USD at 1.23 at end Q1, rising to 1.30 at end-2017 and 1.35 at end-2018, while GBP/EUR is forecast at 1.18 at end Q1, rising to 1.21 at end-2017. Sterling is likely to be volatile and forecasts are subject to developments in negotiations on EU exit and a new trade deal, while European elections provide additional risks for the euro. Elsewhere, we have maintained our USD/JPY projection of 112 by the end of this year.
    • In the emerging markets, we anticipate gradual depreciation of the Chinese renminbi, with USD/CNY seen rising to 7.10 at end-2017. We still see scope for recovery in the Mexican peso, with our end-2017 target for USD/MXN at 19.00. The Turkish lira, however, could remain under pressure and our end-year target for USD/TRY is 3.80.

    Read the full International Financial Outlook Report for January 2017.

    Read the previous International Financial Outlook Report for December 2016.