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Euro to Dollar Forecast: 1.04 in Next 12 Months say Danske

December 7, 2023 - Written by Tim Boyer


Foreign exchange strategists at Danske Bank expect that the overall global profile will undermine the Euro while US out-performance is likely to continue. In this environment, the Euro to Dollar (EUR/USD) exchange rate is likely to grind lower next year.

It is, however, wary over the potential for near-term EUR/USD gains and recommends selling EUR/USD through the options markets rather than in spot markets.

The latest Danske 12-month forecast is 1.04.

The bank expects volatile markets in 2024 and is likely to favour outright selling if EUR/USD re-tests the 1.10 area.

Danske expects that that Fed and ECB interest rates have both peaked and that there will be cuts in 2024. It is also likely that the Fed will cut slightly faster than the ECB.

According to the bank; “Given our expectations for the Fed and the ECB, the prospect of a narrowing rate spread between the US and the euro area would, all else being equal, be a tailwind for EUR/USD.”

Danske, however, expects wider fundamentals will outweigh this potential Euro support.

According to the bank; “Despite weakening signs in the US economy during Q4, on a relative basis, we deem the US economy is on a stronger footing than the underwhelming euro area economy, which is also susceptible to various risks, such as a surge in energy prices, debt sustainability and/or weak Chinese growth.”

It expects these structural vulnerabilities will be crucial in undermining the single currency.

Danske also considers that the medium-term fair value for EUR/USD is only just above parity at 1.01 and that the Euro is, therefore, overvalued at current levels.

The bank also notes that there are a substantial number of Euro positions in market, maintaining the risk of a cutting of long positions.

It also notes that the market consensus is again for the dollar to weaken in 2024, increasing the risk of Euro selling if this narrative is again frustrated.

Danske does note that the view of a weaker Euro will be at risk if the global economy is stronger than expected. A hard landing for the US economy would also undermine the dollar.
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