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Euro to Dollar Outlook 2024: HSBC Now Predicts Above 1.10

December 20, 2023 - Written by Frank Davies


The Euro to Dollar exchange rate (EUR/USD) has been held below 1.10, but found support below 1.0900 on Monday and advanced to 1.0935 on Tuesday with relatively narrow ranges prevailing.

Federal Reserve and ECB policy decisions, as well as market pricing, will be crucial factors.

Goldman Sachs expects the Fed and ECB will both be more aggressive than expected previously and has adjusted its 12-month EUR/USD forecast to 1.12 from 1.10.

MUFG sees the potential for limited near-term dollar selling; “The ongoing dovish repricing of outlook for Fed policy leaves the USD vulnerable to further weakness heading into early next year, although current US rate market pricing sets a higher hurdle now for further dovish policy surprises.”

It adds; “The release of the latest PCE deflator report for November on Friday is expected reveal further evidence of slowing underlying US inflation pressures and is not expected to challenge the US dollar’s recent sell-off.”

BNP expects that the December Fed meeting was important; “we think the Fed’s dovish pivot at its December meeting has accelerated this move, and expect it can continue.”

The bank added; “Additionally, with Fed rate cuts supporting a soft landing narrative, and as we expect fewer rate cuts to be delivered by other major central banks next year compared to the Fed, we expect the USD to remain on the back foot.”

BNP sees a 12-month EUR/USD forecast of 1.15.

ING notes that ECB officials have been consistent in pushing back against market expectations of interest rate cuts.

It does, however, add; “Despite that, it still appears quite hard to dissuade the market from its conviction that rates will start to be cut in April. Data remains the missing link for a more material repricing in ECB rate expectations, and another miss by the German IFO survey suggests we are not at peak pessimism yet on the eurozone economic outlook.”

It adds; EUR/USD can trade above 1.10 during the holiday period as the dollar enters a seasonally soft period, but rate differentials are still too depressed to argue for a sustainable rally above 1.10 just yet.

It does expect that EUR/USD will strengthen to 1.15 at the end of 2024.

Bank of America expects that the ECB pushback attempts will be more successful and added; “Current market pricing is not compatible with a return of inflation to 2% and hence is going too far.”

As far as Fed policy is concerned, BoA added; “We maintain our outlook for a cutting cycle that begins in June of 2024, though as we note below, the incoming data and translation of CPI outturns into forecasts of PCE inflation pose risks to an earlier - or faster - cutting cycle than we currently project.”

Goldman Sachs has made substantial changes to its US interest rate forecasts as it is now expecting the Fed to cut interest rates five times in 2024 compared to the previous forecast of only once during the year.

A lower US rate profile will tend to undermine the dollar and Goldman no longer forecasts EUR/USD below 1.05 on a 3-month view.

Nevertheless, it is cautious over forecasting a major change in currency markets given the global dynamics.

It notes; “That said, we see a number of reasons why the “pivot party” should be more limited in FX than some other asset classes.”

Importantly, it expects that the ECB and Chinese central bank will have to be more aggressive in easing monetary policy, limiting dollar selling.

HSBC still considers that the bias will be for US currency strength; “A number of scenarios, including a potential US soft landing, still point to a strong USD but only a global soft landing delivers a clear dollar bear case.”

HSBC is now forecasting EUR/USD above 1.10 in 2024.
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