4Cast on top with bullish dollar bet

4Cast has topped this week's three-month currency forecast rankings after predicting the US dollar would appreciate against other major currencies as central banks diversified global reserves.

On April 12, with USD/JPY and USD/CHF trading at 99.16 and 0.93 respectively, 4Cast predicted the dollar would rise to 101 against the yen and 0.96 against the Swiss franc in three months' time – both accurately reflected spot rates on July 8, even though the dollar had weakened and then strengthened again in the interim.

"We've been saying for the past two years the dollar should be stronger and we're finally in a phase where it is starting to pick up again. There are a lot of economies earning dollars in their reserves and their efforts to diversify away from the US dollar saw the euro's share of international reserves grow by around 10% from 2001 to a peak of around 28% in 2010. Reserve managers might be thinking they've got enough euros for now, and if they can buy them a bit cheaper when the dollar picks up they will be more inclined to stand back," says Paul Bednarczyk, head of research at 4Cast in London.

4Cast was also accurate in its prediction that sterling would fall from 1.54 against the dollar to 1.495 by early July. The currency has been particularly volatile since the arrival of Mark Carney as governor of the Bank of England on July 1, and the issuance of forward guidance following his first monetary policy committee meeting on July 4. Cable subsequently fell from 1.53 to 1.48 during the course of five days, according to data from Thomson Reuters, before rebounding to 1.51 on July 11.

"I thought what was interesting was that the market took the message from the Bank of England to be more dovish than that from the European Central Bank (ECB). The ECB was much more explicit in saying rates would stay low, whereas the Bank of England comments on the future path of interest rates not being justified by current levels was less clear. So I would be a little reticent to get too dovish on sterling – cable will weaken but I expect EUR/GBP will come down too," says Bednarczyk.

Looking ahead to the next three months, 4Cast remains bullish on the US dollar, and Bednarczyk believes USD/JPY could climb to 110, while EUR/USD will continue to fall, dipping to 1.20. But he expects the Norwegian krone to appreciate after it plummeted wildly in the wake of last month's meeting of the Federal Reserve Open Market Committee.

We've been saying for the past two years the dollar should be stronger and we're finally in a phase where it is starting to pick up again

"NOK's time has to come pretty soon. What's not to like about Norway? It has no shortage of money and oil, low unemployment and the currency is far too weak," says Bednarczyk.