Euro to Dollar Week Ahead Outlook: New Ranges 1.05-1.15 by End 2024

February 18, 2024 - Written by John Cameron

STORY LINK Euro to Dollar Week Ahead Outlook: New Ranges 1.05-1.15 by End 2024

BNP Paribas currency analysts expect the Euro to Dollar exchange rate (EUR/USD) to strengthen to 1.15 at the end of 2024.

Barclays, however, sees downside EUR/USD risks to their Q1 forecast of 1.05.

The major US data releases were mixed during the week with a stronger than expected readings for consumer and producer prices while there was weaker than retail sales data.

Inflation data had a bigger market impact on Treasuries and the dollar secured net gains, although EUR/USD was resilient with only minor losses to 1.0770.

Overall, market confidence in a near-term Fed rate cut continued to decline with the chances of a May cut dipping below 40%.

CIBC noted the stronger than expected consumer prices data; “Today's report reinforces our call that the Fed will be hold until the second half of 2024.”

The bank still expects the Fed will act if the economy weakens; “Progress on core inflation stalled today for the first time in over six months. The substantial progress on core inflation achieved in the second half of 2023 still sets the Fed up to be less willing to tolerate a material slowing of the economy.”

According to Goldman Sachs; “We continue to expect the FOMC to leave the Fed funds rate unchanged at the March meeting and to begin the easing cycle in May.”

HSBC considers that the shift in expectations is important. It added; “This reappraisal has long been a key part of our USD bullish view, aiding the currency both through higher yields and the hit to risk appetite.”

It added; “It may still have further to run, but the lion’s share of the rate adjustment is likely already done, taking EUR-USD, for example, closer to our forecast of 1.05. A material break below this level may need the conversation to change to whether cuts will be possible at all.”

Credit Agricole sees limited scope for further dollar gains; “We think that some positives are in the price of the USD, and with the currency having reached and even exceeded our targets for Q1, we maintain our neutral outlook on the currency.”

Danske Bank still expects the dollar will secure net gains; “We maintain the strategic case for a lower EUR/USD based on the relative terms of trade, real rates, and relative unit labour costs. Hence, we expect a downward trajectory over the course of the year. In the near term, we like to sell the cross on rallies.”

Danske added; “Unless we see a notable turnaround in US data, we anticipate the USD to remain strong in the near term.”

HSBC looks at the US election and does not see a definitive argument for dollar moves. It noted; “our report also shows that the multiple channels of influence mean the election can impact the USD in various ways, ensuring it cannot be ignored, even if the takeaways from each element end up creating a mixed picture for the USD.”

SocGen questioned its expectations of a weaker dollar after stronger than inflation data and solid data; “It all screams ‘strong dollar’ and laughs in the face of FX forecasts – notably ours, which are the only ones I care about. Should we stick to our view that a very expensive dollar needs a daily diet of better-than-expected data just to keep it where it is, and will eventually fall, or should we just embrace American exceptionalism?”

It added; “If the US economy re-accelerates, the Fed will eventually have to tighten again and the dollar will rally, threatening that 2022 peak. A gossamer-soft landing won’t do much for the dollar but re-acceleration would.”

DXY can develop a more consistent day-to-day bullish grind, potentially fuelled by expectations for a hawkish March FOMC.

HSBC is still concerned over underlying Euro-Zone inflation; “This economic stagnation has not yet been enough to deliver sufficient confidence to policymakers that inflation will move back to target.”

The bank expects that the ECB will hold firm, but added; “It suggests that the policy squeeze on activity might need to be sustained to get inflation that last leg lower towards target. It is a growth-inflation mix that compares unfavourably with the one evident in the US, and will make any recovery in EUR-USD challenging.”

Barclays continues to fret over the global outlook; “More worryingly, global growth trends are not improving meaningfully either, whether via a coordinated stimulus effort by China, or a more endogenous recovery in ex-US growth momentum. It is therefore no surprise that push-back against market pricing of interest rate cuts by GC members has failed to lift the euro appreciably.

Westpac still expects a firm dollar tone and added; “EUR/USD risks retesting Oct 2023 lows in the 1.0450 area if USD strength persists.”

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TAGS: Euro Dollar Forecasts