Why are currency predictions always wrong?

How have bank exchange rate forecasts fared in this historic summer?

Two months after our July-September forecast was published, currency markets have lived up to their reputations as unpredictable beasts. We’ve seen mini-panics, more trade uncertainty, and even a debt-fueled bond sell-off to start September.

Far from taking the summer off, traders have been as frantic as ever. The euro has emerged with credit, but that’s largely the result of the pound and the US dollar suffering from simultaneous reputational shocks. Sterling’s struggles have more to do with government spending, whereas markets recoiled at President Trump’s wrangling with the Federal Reserve and the Bureau for Labor Statistics.

The problem is that markets are not robotic. They are made up of people, people who share offices, Bloomberg subscriptions, phone calls and friendships, people who (despite their qualifications) are not immune from panic and groupthink. Issues can snowball very quickly, and what begins as a tiny disruption can easily collect other anxieties, barreling down the mountain until it becomes an avalanche.

All that makes exchange rates notoriously tricky to predict. But the banks still try and their predictions can serve as useful indicators of the market mood at a given time. Let’s highlight the predictions from our latest forecast and uncover the good, the bad, and the ugly of predicting exchange rates.

GBP/USD

The pound started the quarter strong but never looked like regaining its initial strength against the US dollar. GBP/USD began July at 1.37 but finished August several cents lower – the result of a tempestuous summer and ongoing worries about fiscal policy.

Our last forecast carried a ten-cent rage (1.33-1.43) for the pair across the quarter. In truth, the upper range of that forecast has never been in danger. Trump’s meddling with independent officials resulted in only short spikes for the pair, and sterling has been dragged by tepid growth prospects and constant scrutiny of the government’s spending plans.

GBP/EUR

A strong quarter for the euro has limited sterling’s upward mobility. Across July and August, GBP/EUR puttered along between 1.15-1.16 – within the lower range predicted in our last forecast but nowhere near the upper limits some of the more bullish banks expected.

If anything, the trends dragging the pound have strengthened rather than dissipated. The Bank of England cut interest rates just as the European Central Bank considered raising their own. Aside from a brewing crisis in French parliament, things are looking bright for the euro headed into the final stretch of 2025.

EUR/USD

The euro held its own against the US dollar in the summer months. Once again, the majority of the bank forecasts we highlighted were grouped in a tight range, and the pairing has more or less conformed to these expectations.

However, some thought EUR/USD would do significantly better than it has. The euro hasn’t been above 1.20 since 2021, so perhaps it was always unlikely that it would surpass that psychological milestone. Instead, the single currency has clung like a limpet to multi-year highs, riding out the storm of trade negotiations with little fuss.

Why you shouldn’t second guess currency

As we’ve seen this quarter, movements in currency markets can be sharp and unpredictable. Even the best predictions are no match for unexpected trends and unprecedented events. This summer has certainly had it’s fair share of those.

Put simply, businesses that try to second guess where exchange rates will move are putting their bottom lines at risk. Rather than putting your financial future at stake, it’s far better to develop comprehensive risk management strategies that will help you weather any storm.

Register with Smart Currency Business today or request a call back from our team to protect your cashflow and gross profits.