Introducing Stears’ Exchange Rate Forecasts

Stears has released an exchange rate (FX) Forecast Model to help investment teams, strategy teams, and researchers better manage their African currency risks. This first release provides end-of-quarter forecasts for seven African countries (Angola, Ghana, Kenya, Nigeria, Rwanda, South Africa, and Uganda) against the US dollar from Q1 to Q4 2024. 

At its core, the model establishes a baseline forecast for each currency, factoring in current and forecasted inflation differentials between the African countries and the US. While some institutions adopt this approach for forecasting exchange rate volatility, this approach does not fully consider all the factors that determine an exchange rate—namely risk perception and other market conditions. This omission is more acute in Africa, where more volatile policies and market interventions can move exchange rates temporarily off their PPP-predicted path. 

As a result, we augment our initial estimates with an adjustment factor or “analyst premium”. The initial premium is calibrated using historical data. Then, subsequent values will be pinned down by market conditions, which highly correlate with exchange rate movements. Our forecasts are reviewed and updated monthly to adjust for major market changes for all seven currencies on our data platform

The result of this approach is the creation of an FX forecast that combines the fundamental medium-term factors with shorter-term changes in outlook to create a more accurate prediction of exchange rates for our users. 

Exchange rate volatility in African countries

Overall, emerging markets (EM) exchange rates had a turbulent 2023. Over the last few years, the pandemic and Ukraine war-induced supply-side shocks have pushed inflation rates in advanced economies to record highs. Inflation peaked in 2022 before it began to cool last year. This forced most of the major central banks to increase interest rates, which moved money from emerging markets to safer assets in the US and Europe. As a result, EM exchange rates have been under pressure. This was especially acute in 2023, as US inflation rates began to fall to the usual 3% levels, while EM rates have been more sticky. As predicted by our model, the divergence led to acute exchange rate depreciations in regions like Africa, which struggled to calm inflationary pressures last year. Out of the top 10 worst performers against the US dollar, seven are African countries.


While Africa’s growth potential remains unmatched, it also comes with risks. For instance, Nigeria has the largest population in Africa and a growing consumer class. However, success in the West African nation is difficult without properly understanding the context of a volatile economy.



Despite having a fixed or managed float regime throughout its history, the Nigerian naira goes under significant stress during economic crises. This is why investors and operators need to understand the longer-term and short-term views of where the exchange rate is heading—allowing them to navigate current volatility while planning for the future. 

2024 Outlook 

Stears’ Exchange Rate Forecasts predict reduced volatility for African exchange rates throughout the year, as the gap between US and African inflation rates narrows. Further, the continent's market outlook and economic fundamentals are expected to improve. This anticipated trend is expected to result in fewer depreciations, with several African currencies strengthening against the US dollar. 

The market has already seen signs of this in Kenya, where the shilling has gained approximately 5% against the dollar between January and February after a positive market response to the country’s recent $1.5 billion Eurobond issuance. We predict further upside for the Kenyan shilling with the Central Bank of Kenya’s FX intervention and recent rate increase. Despite a tough start to the year for the naira in Nigeria, we expect the currency to find better stability in 2024. FX reforms and our inflation model estimates predict a slowdown in inflation and appreciation of the currency.

To learn more, access our Exchange Rate Forecasts or contact the team if you need to Request a demo of the platform.