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Euro to Dollar Forecast 2024: Odds of 1.20 Next Year "Very Slim Indeed" says Juckes

December 18, 2023 - Written by John Cameron


Where do foreign exchange analysts see the Euro (EUR) against the US Dollar (USD) next year (2024)?

Commerzbank expects that the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.15 by mid 2024 before fading.

Morgan Stanley, however, expects that EUR/USD will weaken back to parity in Spring 2024.

EUR/USD surged to highs just above 1.10 after a dovish Federal Reserve statement before a slide to near 1.0900 after weak Euro-Zone data and a limited Fed pushback.

The Fed held interest rates at 5.50% which met consensus forecasts.

There was, however, more dovish than expected rhetoric from Chair Powell.

According to Powell; “The question of when will it be become appropriate to begin dialling back the amount of policy restraint in place begins to come into view.”

He added; “I would say there’s a general expectation that this will be a topic for us looking ahead.”

A crucial element was also a lowering of interest rate projections for 2024.

According to the latest update, median projections amongst FOMC participants for the Fed funds was lowered to 4.6% from 5.4%.

In response, markets were more confident that rates would be cut in March and the dollar posted sharp losses as yields declined.

Markets also moved to price in rate cuts to at least 4.00% next year.

According to ING; “It is hard to see the market pricing in more than the 150bp of rate cuts it has already for 2024 - especially since yesterday's US retail sales and jobless claims came in on the strong side.”

In comments on Friday, New York Fed President Williams stated that the Fed is at or near the right place for monetary policy.

He did, however, add that the Fed must be ready to hike again if needed.

Importantly, he added that it’s premature to be even thinking about the timing of rate cuts and that the rate-cut issue is not the main question before the Fed.

Williams’ comments helped spark a dollar recovery.

The ECB held interest rates at 4.5% at the latest policy meeting and bank President Lagarde was adamant that there had been no talk of lower interest rates.

Euro-Zone business confidence data remained weak in recession territory with the PMI manufacturing index unchanged at 44.2 for December and slightly below consensus forecasts of 44.5.

The services-sector index retreated to a 2-month low of 48.1 from 48.7 and below expectations of 49.0.

According to the survey, average selling prices rose at an increased rate, posting the largest monthly increase since May to remain high by the historical standards of the survey.

The pricing data helps explain why the ECB is determined to resist talk of lower interest rates.

MUFG, however, expects the strategy will run into trouble; “The longer the ECB keeps rates at current restrictive levels the more likely it runs the euro-zone economy into the ground unlike the Fed which is attempting to engineer a softer landing for the US economy.”

MUFG added; “The euro-zone backdrop and indeed the global backdrop does not seem to us conducive to a further sustained rally in EUR/USD.”

It noted the risk of erratic trading during the Christmas period, but added; “If this rally is sustained over that period, we’d expect a reversal as we advance through Q1 next year – which from a seasonal perspective covers a six-week period that is the worst of the year for EUR/USD.”

Although Commerzbank has raised its June 2024 EUR/USD forecast to 1.15, it does not expect strength will be sustained.

According to the bank; “A long-term US growth advantage should then become more plausible and lead to USD strength again, as it has until recently.”

It added; “We therefore continue to believe that EUR/USD strength we expect in the coming quarters will not be permanent.”

According to Danske Bank, easier financial conditions may contribute to the current low volatility. It also notes that seasonal trends tend to be positive for equities in December and negative for the dollar.

Nevertheless, it adds; “We think it might just be the calm before the storm. Volatility normally rises when central banks cut rates as rate cuts are normally more difficult to price and often coupled with slower growth or even recessions and financial stress.”

It adds; “That is likely on the menu for next year, which would provide a tailwind for the USD and a rise in volatility. In sum, we think EUR/USD could take another shot at the 1.09-1.10 level near term, but we expect it to fall to 1.04 in 12M.”

According to Socgen; “Today, disappointing European PMI data have prevented EUR/USD from kicking on after breaking above 1.10 and that is going to be a familiar pattern as long as the European economy struggles.”

The bank’s Kit Juckes added; “I think the chance of EUR/USD making it back to 1.20 in 2024 is very slim indeed.”

According to Morgan Stanley; “we think the market is still underpricing weakness in Europe and strength in the US, and a continued widening in growth and rate differentials should weigh on the pair.”
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