This year has seen a strong recovery in the euro and dollar at the expense of commoditycurrencies, Scandies and the JPY. Central banks still play the most important role in guiding FXmarkets, a development we largely expect will continue into next year. Our currency marketforecasts for 2014 are as follows: 1) The Fed will begin tapering at the FOMC meeting on Dec18, stabilizing the USD outlook and continuing to raise USD/JPY towards our long-term targetat 115; 2) While the ECB will move closer towards adopting QE-policies this coming spring, thestrong flow-related improvement for the euro-area from both the current account andportfolio flows prevents significant euro depreciation ahead of the actual adoption of QEmeasures in Q1/Q2 2014. We therefore forecast more of the same, i.e. strong G2 vs. a weakerJPY; 3) We do not expect the encouraging performance of GBP 2013 driven by much strongergrowth prospects to continue next year. Expectations are premature regarding tighter BOEmonetary policy while the UK economy still needs more rebalancing; 4) We believe commoditycurrencies, still overvalued, will underperform vs. G10, and tighter Fed policies weigh on theirperformance as terms of trade are also likely to disappoint; 5) Finally, Scandies are caughtbetween strong G2- and weak commodities. We forecast EUR/SEK to trade just above 9.00 asthe Riksbank cuts rates, though the cyclical recovery we project for the global economy nextyear will benefit the krona. We expect a return to below 8.50. The NOK is torn between adovish central bank policy and strong macroeconomic fundamentals. The risk is that NorgesBank will continue in a softer direction as domestic cost developments promote a weak NOK.We still regard a short NOK/SEK position as attractive on rallies.
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