Euro to Dollar Exchange Rate Forecast: 1.07 in Three Months, say Deutsche Bank

Modified: Sunday, 22 October 2023 08:25 BST - Written by John Cameron

STORY LINK Euro to Dollar Exchange Rate Forecast: 1.07 in Three Months, say Deutsche Bank

The Euro (EUR) has remained strong despite the recent surge in US yields and the overall robustness of the US Dollar (USD) this week.

At the time of writing, the Euro to Dollar exchange rate (EURUSD) traded at 1.0598.

Currency News UK brings you the latest institutional FX forecasts from ING, Deutsche Bank, MUFG, HSBC, Rabobank, CIBC), along with a roundup of the weekly EUR/USD news.

Deutsche Bank has lowered its end-2023 Euro to Dollar (EUR/USD) exchange rate forecast sharply to 1.07 from 1.15, although it still expects a small recovery from current levels.

CIBC and Rabobank both expect EUR/USD will post losses from current levels with year-end forecasts of 1.03 and 1.02 respectively.

Two themes of risk aversion and global bond markets have tended to dominate markets during the week.

Middle East tensions have been important with significant demand for defensive assets.


There has been strong support for the Swiss franc with the Euro to Franc (EUR/CHF) exchange rate, for example, sliding to 12-month lows below 0.9450.

There has also been sustained demand for precious metals with gold hitting 5-month highs after Friday’s European open.

Florian Ielpo, head of macro at Lombard Odier Investment Managers commented; "Markets are caught between a rock and a hard place, with a surge in risk aversion where bonds provide no protection."

He added; "Where do you express that risk aversion when you can't express it in bonds? Other than U.S. dollar cash, only the Swiss franc and gold remained as options.”

Although the dollar has been strong, the Euro has been resilient with EUR/USD finding support close to 1.0530 and rallying to 1.0600.

US bond markets have been very important with Treasuries overall under heavy selling pressure during the week.

The key 10-year yield briefly touched 5.00% and the highest level since 2007 before settling around 4.92%.

US economic data has been generally robust during the week with stronger than expected data for retail sales and a decline in jobless claims.

According to ING; “Markets have continued to receive evidence of US economic resilience, this time in the jobs sector as initial jobless claims surprised again to the downside and broke below 200k.”

Deutsche Bank commented; “The Fed remains the most important catalyst for a move lower in the Dollar. While the US inflation picture is looking increasingly benign, outperformance in growth supports the USD.”

Survey evidence has, however, been subdued with the Philadelphia and New York manufacturing indices in contraction territory.

In comments on Thursday, Fed Chair Powell stated that more evidence of above-trend growth or that the labour market is no longer easing could warrant further tightening.

Powell also maintained concerns over underlying inflation pressures.

He did also state that tighter financial conditions with higher yields could have policy implications and the Fed remains attentive.

The Fed blackout period will start at the weekend and Powell’s rhetoric clearly signal that rates will not be increased at the November meeting.

There was also a slight shift in medium-term market pricing with a further rate hike seen as less likely with the chances of a December rate hike just below 40%.

The dollar overall has struggled to make strong headway despite supportive fundamental factors.

MUFG notes that the Euro will be vulnerable if a surge in risk aversion triggers strong upward pressure on energy prices. It adds; “The main risk of the pair moving closer to parity would be if geopolitical risks in the Middle East continued to intensify.”

ING also pointed to risks from the energy market; “Barring a rapid de-escalation in the conflict, there is a lingering risk of a lagged impact on asset classes. That is another upside risk for the dollar – which is positively correlated with oil prices now, and historically negatively correlated with equities.”

Rabobank expects the US currency to benefit; “we expect safe-haven demand to remain supportive for the USD given the scale of uncertainty surrounding the Middle East.”

MUFG also looks at Chinese developments; “On the positive side for the EUR, there has been more evidence that economic growth in China is picking up heading into year-end which is helping to ease another downside risk that has been weighing on the EUR over the summer.”

ING also noted some positivity surrounding China; “we have recently seen a tentative recovery in the eurozone and Chinese data flow. A market that may feel the peak of pessimism has been priced into USD rates could be placing some forward-looking long positions on EUR/USD as the bearish growth narrative for non-US major economies is seen abating.”

HSBC noted that the Euro area runs a current account surplus and added; “The structural drivers to FX rarely get traction in G10 FX, but the Eurozone’s healthier external balance offers a cushion against a more dramatically bearish EUR view.”

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TAGS: Euro Forecasts