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Euro to Dollar Rate: 2024-2025 Forecast at 1.15 say BofA

November 1, 2023 - Written by John Cameron


Foreign exchange analysts at Bank of America (BoA) are sticking with their end-2024/2025 Euro-Dollar forecast of 1.15 as the US economy deteriorates.

At the time of writing, the Euro to US Dollar exchange rate traded at 1.0544 .

It has also maintained its end-2023 forecast of 1.05, but looks at the potential risks which could trigger much sharper losses.

According to the bank, there are two key elements which could trigger further Euro losses.

BoA considers that one key risk is that the Middle East conflict escalates.

It notes; “the markets tentative assessment is that a broader regional conflict might be avoided, though the situation is clearly fluid.”

A key element will be developments in the energy market, especially for oil prices.

According to BoA; “A severe oil price shock, potentially from an escalation in the conflict in the Middle East, could even move EURUSD well below parity. These are not developments we include in our baseline, but they are baseline risks nonetheless.”

MUFG is doubtful that EUR/UD will break below 1.0500.

It does, however, add; “One potential trigger for EUR/USD to break below the bottom of the range and retest parity would be if the conflict in the Middle East broadened out, and triggered a sharper adjustment higher in energy prices that hurts European economies’ terms of terms.”

The second risk is that the US economy will remain strong for longer than expected which would trigger a market reassessment of the path of Federal Reserve interest rates with 2024 rate cuts priced out.

It adds that any move to price out rate cuts by the end of 2024 or price in further rate hikes beyond December of this year could push EUR/USD to parity.

ING expects that the US yield curve developments will be crucial. It adds; “For the time being, there is not enough evidence to call the dollar lower – especially with the ECB delivering a more convincing dovish pause – and we see no current reason to change our year-end EUR/USD forecast of 1.06.”

BoA, however, has consistently argued that there will need to be economic weakening to bring inflation down to target.

Although the economy could stay stronger for longer, it still expects that there will be an important weakening.

According to the bank; “There may be lags and inflation may remain sticky for a while during the landing, but this would be the beginning of the end of inflation. This is why we still expect EURUSD to strengthen to 1.15 by the end of next year.”

BoA adds; “The more and the earlier US data starts to weaken compared with the rest of the world, the more likely this scenario.”

According to SocGen; “Expectations for strong US data and weaker figures in Europe, mean that it takes a genuine surprise to really excite the market, but for all that, reminders of economic divergence on sentiment can build up until they reach breaking point for Euro.”

Socgen added; “there is still more danger of EUR/USD heading closer to parity, than making a move back above 1.10.”

Commonwealth Bank of Australia analyst Carol Kong added; "The data shows the (European Central Bank's) 450 basis points of interest rate hikes are working to restrict demand, we estimate the euro zone economy is now in recession."

Goldman Sachs is sticking to its forecast of medium-term dollar losses; “Our macro forecasts continue to point to more balanced growth ahead and falling inflation in the US, which should weaken the Dollar over time. “

Nevertheless, it does not see the ingredients for a decline in place at this point and adds; “But, right now, there is building pressure against the policy anchors, and few ‘challengers’ will be able to match the US if fresh hikes are considered more actively by Fed policymakers.”
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