CRU: Unit Labor Cost Improves Exchange Rate Forecasting

By CRU Senior Cost Economist Ross Cunningham and CRU Research Analyst Eric Lucking, from CRU’s Global Steel Trade Service

At CRU, we forecast the exchange rates for all the countries where our relevant commodities are produced. Our short and medium-term view is reviewed each quarter. This is anchored to our long-term forecast, which uses a methodology that considers the idiosyncrasies of the countries of interest. This article sets out our rationale and works through some examples to highlight the importance of wage growth, productivity and consumer inflation as drivers for long-term foreign exchange rates.