Economists from a Canadian credit union and a German state-owned bank are delivering the best predictions in global foreign-exchange markets, while only one Wall Street firm ranks among the top 10.
Desjardins Group of Montreal and Stuttgart-based Landesbank Baden-Wuerttemberg were the most accurate forecasters of major currencies for the four quarters ended March 31, data compiled by Bloomberg show. Hendrix Vachon, an economist and currency strategist at Desjardins, parlayed insight into Mark Carney’s behavior to predict how the former Bank of Canada head would engineer monetary policy in the U.K., and correctly forecast the pound would best other developed-nation currencies. JPMorgan Chase & Co. ranked 10th.
Vachon is maintaining his call on the British currency, which gained 10 percent versus nine major peers in the past year, saying his favorite trade is to “short the euro and go long the pound.” Since taking the helm at the Bank of England in July, Carney jump-started a recovery by using forward guidance that downplayed the chance of an interest-rate increase and prodded recession-scarred banks to begin lending again.
“When Mark Carney came to the Bank of England, many thought it would be very dovish,” Vachon said by phone from Montreal on April 2. “It was not our case, and this is perhaps one of the reasons why we were more optimistic than average about the pound.”
Vachon sees the pound gaining more than 4 percent against the euro and almost 1 percent against the dollar by year-end. Contrary to Carney’s dovish guidance, Vachon expects the BOE to move ahead of developed peers by raising rates in early 2015. Market indicators point to March 2015, according to one-month forward Sonia contracts.
Carney reiterated in an interview published yesterday in the Northern Echo newspaper that there’s “slack in the labor market” that needs to be used up before policy makers increase interest rates.
Europe’s common currency will slide 4.6 percent against the dollar as five years of austerity in the euro area chokes employment growth, Vachon said.
A splintering of European economies also underscores the view of LBBW economist Julian Trahorsch, whose accurate predictions catapulted him to the top of the euro-Swedish krona forecasting table.
“Norway and Sweden will show double the growth rate of 1 percent the euro zone will show this year,” Trahorsch said by phone yesterday from Stuttgart. “There’s a very strong case for a stronger Norwegian krone and Swedish krona.”
Trahorsch is forecasting an almost 3 percent rise in the Norwegian krone to 8 per euro by the end of 2014.
Deepening political tensions between Russia and Ukraine will prompt European nations to turn away from Russian energy and demand more Norwegian oil, he said.
His forecast for the Swedish krona is for an almost 2 percent appreciation to 8.8 per euro by the end of the year. Sweden’s central bank may match the BOE in the timing of a rate increase in the first half of 2015, Trahorsch said.
The best forecasters in Bloomberg’s rankings were identified by averaging individual scores on margin of error, timing and directional accuracy across 13 currency pairs over the past four quarters. Firms had to be ranked in at least eight of the 13 pairs to qualify for the overall ranking, with 53 qualifying.
Desjardins had the top score for overall forecasting of 63.88 out of 100. LBBW was second with 63.87, trailed by Macquarie Group Ltd. with 63.43, and Westpac Banking Corp. at 63.33. Prestige Economics was fifth, scoring 59.22.
Norddeutsche Landesbank Girozentrale was sixth with a score of 57.76, followed by Oversea-Chinese Banking Corp. at 57.69; Maybank Singapore, 57.1; Intesa Sanpaolo SpA, 56.92, and JPMorgan, 56.81.
Carney abandoned an unemployment measure to dictate forward guidance in February after the strongest growth since 2007 sent the jobless rate tumbling toward the 7 percent threshold for considering a rate increase.
The Office for Budget Responsibility, Britain’s fiscal watchdog, raised its 2014 growth forecast to 2.7 percent in March, prompting investors to boost bets the BOE will increase borrowing costs next year from a record-low 0.5 percent.
Under an initial-guidance program implemented in August, the BOE pledged not to increase its key rate before unemployment fell to 7 percent, as long as three so-called knockouts linked to inflation and financial stability weren’t breached.
The pound will end the year at $1.67 and rise to $1.70 in 2015, Vachon said, from $1.6585 as of 10:45 a.m. in New York. The euro will decline to 79 pence by year-end, from 82.54 pence, and $1.32, from $1.3693, he said. The yen will decline to 110 to the U.S. dollar, from 103.65.
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