November 5, 2023 - Written by David Woodsmith
STORY LINK Euro to Dollar Forecast: Updated November 2023 FX EUR Predictions
Currency analysts at Rabobank expect the rally seen in the Euro (EUR) against the US Dollar (USD) to fade quickly from here, and forecast a retreat to 1.02 on a 3-month view.
MUFG expects the Euro US Dollar exchange rate to retreat to at least 1.05 by the end of 2023 before a strong rebound to 1.12 by the second quarter of 2024.
Here are the latest institutional forecasts from Socgen, TD Securities, Westpac, Capital Economics, ING and the EUR/USD news for the week.
After a weaker-than-expected US jobs report, EUR/USD rallied strongly to 6-week highs just above 1.0730.
Markets will be watching closely whether investment banks revise their dollar forecasts following the Federal Reserve meeting and jobs data.
The Fed held interest rates at 5.50% following the latest policy meeting, in line with consensus forecasts.
There was limited guidance from the bank with Chair Powell stating that the risks of doing too much or too little were now more evenly balanced.
He also stated that the Fed has come a long way and that the rate cycle is close to completion.
According to TD Securities; “The key takeaway is that the Fed is happy to sit on the sidelines, waiting to see the impact of the old and new shocks play out.”
It added; “The Fed will remain data dependent but the focus on financial conditions means that the bar for another hike is higher. If the data starts to soften as we expect, then the USD should follow it lower.”
The latest US labour-market data recorded an increase in non-farm payrolls of 150,000 compared with consensus forecasts of 180,000 while the September increase was revised lower to 297,000 from the previous reading of 336,000.
The household survey recorded an increase in the unemployment rate to 3.9% from 3.8% and there was a reported decline in the number of employed of close to 350,000.
There was a 0.2% in average hourly earnings compared with expectations of 0.3% with the year-on-year increase slowing to 4.1% from 4.3%, although slightly above expectations of 4.0%.
There was some impact from a strike by AUW auto-workers.
Peter Cardillo, Chief Market Economist at Spartan Capital Securities commented; "This is a good sign that the labor market is weakening and is playing into the hands of the Fed. It probably indicates another pause by the Fed in December, which would signal that the Fed is done raising rates."
Andrew Hunter, deputy chief U.S. economist, at Capital Economics took a similar view; "The strongest argument for the Fed to abandon its tightening bias is that wage growth continues to slow. Overall, we suspect the softening in labour market conditions has much further to run and still expect the Fed to be cutting interest rates again in the first half of next year."
Socgen notes that the dollar’s inability to strengthen recently has triggered a shift in sentiment; “Dollar bears are creeping out of the woodwork and wondering what they can sell it against, while bulls are retreating into the shadows as weak data in Europe (notably but not exclusively) fails to give the Dollar a lift.
It added; “Is this a pause, or a turning point? Our best guess is that this is neither a clear turning point nor a pause that will be followed by another leg higher.”
The bank notes that there are still positives for the Dollar with the economy continuing to out-perform. Overall yield spreads have also edged in favour of the dollar.
Socgen added; “The bearish Dollar case will be much clearer next year when household savings are weaker, monetary tightening effects are clearer and Fed easing is closer. However, we may be stuck in a range for the rest of the year.”
For now, the bank considers; “Positioning will be an anchor, and there’s a lot of bad European news priced in. For EUR/USD 1.04-1.08 might capture all the action for the coming weeks.”
Westpac expect that the US economy will remain robust and that it is too early to discount the risk of further Fed rate hikes.
According to Westpac; “Q3 Eurozone GDP reinforces the stagnation narrative, encouraging markets to price in more aggressive 2024 ECB rate cuts than for the Fed, while soft China services PMIs and still poor price action in China property stock gauges suggest ongoing China caution.”
Westpac still sees a risk of 1.0250-1.0300, but a close above 1.0700 could change their view.
Although ING expects a weaker dollar next year, it is wary over potential risks; “Our forecast for a eurozone recession, a difficult return of the Stability and Growth Pact, and the ongoing threat of a geopolitical spike in oil prices present downside risks to our view of a Fed-driven rise in EUR/USD to 1.10 next summer and 1.15 by year-end 2024.”
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TAGS: Euro Dollar Forecasts