Euro US Dollar Exchange Rate Forecast to Hit 1.10 in Six Months: Goldman Sachs

April 1, 2024 - Written by Frank Davies

STORY LINK Euro US Dollar Exchange Rate Forecast to Hit 1.10 in Six Months: Goldman Sachs

Foreign exchange analysts at Danske Bank see scope for the Euro to Dollar exchange rate (EUR/USD) to strengthen to 1.10 on a 2-month view, but forecasts a fresh retreat to 1.05 on a 12-month view.

ING sees scope for near-term EUR/USD losses on hawkish Fed commentary, but forecasts significant gains to 1.14 at the end of this year.

During the week, EUR/USD dipped to 5-week lows at 1.0775 and settled just below 1.0800 amid hawkish Fed rhetoric.

As far as Federal Reserve policy is concerned, Fed Governor Waller adopted a broadly hawkish stance in comments on Wednesday.

According to Waller, the Fed needs to see at least a couple of months of data to be sure that inflation is heading to 2% and that more progress is needed before supporting a rate cut.

In this context, he added that there was no rush to cut rates and the latest data suggests that fewer rate cuts are possible this year, especially as the latest data had been generally disappointing.

Following the comments, markets are now pricing in just under a 65% chance that the Fed will cut interest rates at the June policy meeting from 70% previously.

Danske still expects the Fed to relent as the economy deteriorates; “We expect the current disinflationary trend will allow the Fed to cut earlier than market expectations in May, followed by two more quarterly cuts during the year.”

Danske added; “In the near term, we think the potential for an early Fed cut poses upside risk to the cross, and perhaps markets have also become too optimistic on US exceptionalism and too pessimistic on economic data from the euro area and China.

Nevertheless, it added; “Strategically, we maintain our USD-positive bias, however, as the structural growth case seems significantly stronger relative to the rest of the world.”

ING commented; “Better activity data and sticky prices have provided support to US rates and the dollar through the early months of the year.

Nevertheless, according to the bank; “a Fed committed to cutting suggests a dollar bear trend now truly starts to emerge.”

It added; “We look for the soft landing narrative to gain traction over coming months and expect rate differentials moving against the dollar to see EUR/USD gently climb above the end-year consensus of 1.10.”

According to Credit Agricole; “We expect both the Fed and the ECB to start cutting rates in 2024 but believe that the Governing Council would ease more aggressively than the FOMC.”

It added that the Euro is “to be one of the worst performing currencies in 2024 on the back of the ECB’s more dovish policy stance and persistent concerns about the Eurozone outlook.”

It forecasts EUR/USD at 1.05 at the end of 2024.

Westpac expects a constructive short-term dollar tone and added; “It Looks primed for an upside break, with ECB, BoE, BoC June rate cut bets firming, while Fed rate cut expectations for June are at risk of being trimmed.”

According to Westpac, EUR/USD may remain in a tight range, but 1.0700 support appears increasingly vulnerable as USD remains strong.

Goldman Sachs commented; “For now, we maintain our view that the clearest path to sustained Dollar depreciation would be from cyclical outperformance abroad that coincides with US inflation relief. But, there are plenty of bumps on that road.”

It has a 6-month EUR/USD forecast of 1.10.

According to NatWest; “we continue to expect improvement in inflation indicators starting with the March prints released in April. We think the case for the Fed to begin easing in June will likely strengthen over the spring, and with it we continue to hold a tactical bearish bias.”

NatWest forecasts EUR/USD at 1.15 at the end of 2024.

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TAGS: Euro Dollar Forecasts