BBH - FX Q1 2013 Forecasts: We expect the dollar to remain in broad trading ranges against the euro and sterling

BBH - "We expect the dollar to remain in broad trading ranges against the euro and sterling. The prospects of more aggressive expansion of the Fed’s balance sheet and the protracted fiscal cliff self-created crisis, even as Europe muddles along, could see the dollar begin 2013 in a softer phase. This could see the euro trade toward $1.35 and sterling toward $1.65. We look for the dollar to recover subsequently. We anticipate the US economy will strengthen after Q1 and that the European debt crisis flares up once again.
We see the yen under-performing as the market adjusts to the new and more aggressive policy mix under the new Japanese government. This may see the dollar trade toward JPY85 in the first part of the year, but there will be costs, such as higher interest rates, if dramatic yen depreciation is anticipated.    The higher rates will not only increase the government’s debt servicing costs, but also weaken bank balance sheets."

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