Euro to Dollar in 2024: Danske Bank Predicts 1.05 in Twelve Months

February 4, 2024 - Written by David Woodsmith

STORY LINK Euro to Dollar in 2024: Danske Bank Predicts 1.05 in Twelve Months

Foreign currency experts at Danske Bank expect that the Euro to Dollar exchange rate to weaken towards 1.05 on a 12-month view.

In contrast, MUFG expects EUR/USD will strengthen to 1.14 at the end of 2024.

Dollar bears suffered a double setback during the week. Federal Reserve Chair Powell cast major doubts on the potential for an interest rate cut.

Lingering hopes for a cut were then dashed by a much stronger than expected US labour market with markets pricing in less than a 20% chance of a March move while bond yields jumped higher.

The Euro demonstrated resilience at times during the week, but EUR/USD still dipped to 7-week lows below 1.0800.

The Federal Reserve held interest rates at 5.50% following the latest policy meeting, in line with consensus forecasts.

According to the statement; “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

Fed Chair Powell stated that he thought it was unlikely that the data would justify cutting rates in March.

Standard Chartered commented; “We were surprised Powell was so explicit in downplaying a March cut, even though his comments were consistent with our view of a first cut in Q2, and increasingly it looks to us like May is likely.”

It considers that the overall rhetoric indicated that there were divisions within the committee.

According to the bank; “We still think the appropriate distinction is between a solid economy and a slower pace of cuts and a weaker economy with sharper cuts, but both risk-on and USD negative.”

Markets still priced in substantial rate cuts for the year.

According to Goldman Sachs; “we continue to expect five cuts in 2024 and three more in 2025 because we expect core PCE inflation to fall at least a couple of tenths below the FOMC’s 2.4% median projection this year, with further declines in 2025.

The US reported a surge in non-farm payrolls of 353,000 for January compared with consensus forecasts of around 185,000 while the December increase was revised sharply higher to 333,000 from the original reading of 213,000.

The unemployment rate held at 3.7% compared with expectations of an increase to 3.8%.

Average hourly wages increased 0.5% on the month compared with expectations of 0.3% with the year-on-year increase strengthening to 4.5% from 4.3% and compared with expectations of 4.1%.

According to ING; “This combination of strong jobs and wages with unemployment falling indicates clear strength in the US economy and even though inflation is still tracking towards 2% the Federal Reserve simply won’t consider cutting rates at the March FOMC meeting.”

CIBC expects a firm near-term dollar tone; “The call here is for the Fed to start easing rates in July. As the market re-prices to that timing, the USD should still gain a bit more in the near-term.”

It still expects the dollar will eventually weaken; “But into H2, we expect the theme of USD weakness to pick up steam as the Fed looks to slow its own version of quantitative tightening (QT) which would put it at odds with how other central banks are proceeding with their own programs.”

Barclays notes positive US developments; “The argument of the US economy being a Goldilocks zone is getting stronger amid data suggesting strong growth and cooling inflation.”

Westpac is concerned over the global outlook which should underpin the dollar; “The China backdrop tilts USD supportive again too, with key China indices erasing half the gains spurred by Beijing's support pledges.”

According to Danske Bank; “we maintain a bias toward selling EUR/USD rallies in the near term. Over the past week, our conviction of a stronger USD has increased, supported by a combination of strong US data, softer data from the euro area (and China), a dovish ECB (perceived by markets), and the prospect of a slightly hawkish Fed.”

MUFG expects US rate cuts will trigger measured dollar losses; “The Fed caution communicated at the January meeting underlines our view that the Fed’s easing cycle will be more pronounced in H2 and by then the global backdrop will improve modestly with a pick-up in growth in Europe and China helping to push the dollar weaker but within narrow ranges.”

Markets are confident that the ECB will cut interest rates in April.

Westpac expects a relatively hawkish ECB stance which may support the Euro; “Given that key wage negotiations are taking place, ECB and authorities will need to sustain their determined stance to contain risks of wage growth feeding back into inflationary pressures.”

Berenberg looked at political considerations; “We expect Trump II to be even more protectionist and at least as wasteful and unwilling to raise taxes as before.”

This could support the dollar, but Berenberg added; “In the long term (around five years), the risk of high US government debt and possible problems in refinancing the debt must also be kept in mind. A significantly weaker US dollar then appears possible.”

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TAGS: Euro Dollar Forecasts