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Euro to US Dollar Outlook: 1.12 by 2025 say BofA

June 2, 2024 - Written by Frank Davies


Bank of America expects that the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.12 at the end of 2024 as the dollar gradually loses ground.

Credit Agricole, however, expects a retreat to 1.05.

Inflation data dominated a relatively quiet week for major currency pairs.

EUR/USD found support just below 1.08 during the week and secured a net gain to 1.0870 following the US and Euro-Zone inflation data.

The headline Euro-Zone inflation rate increased to 2.6% for May from 2.4% and slightly above consensus forecasts of 2.5%.

The core rate increased to 2.9% from 2.7% and above market expectations of 2.7%.

Credit Agricole commented; “With a June ECB rate cut being almost a given now, and two more being very much on the cards for the rest of the year, the fate of EUR-USD rate spreads may ultimately hinge much more on any eventual repricing of the Fed outlook.

It added; “Without some tightening to the levels that prevailed in January and March, EUR/USD could subsequently struggle to establish itself above 1.09 in the near term, which could then pave the way for a retracement to our long-held forecasts of 1.07 for the end of June.”

It expects a further net retreat to 1.05 at the end of 2024.

According to Berenberg; “the fact that the economy in the eurozone is likely to recover somewhat over the course of the year could have a supportive effect on the euro, while a slight economic slowdown is expected in the USA. All in all, we therefore expect the exchange rate to move sideways.”

The US core PCE prices index increased 0.2% for April compared with expectations of a 0.3% increase while the annual rate met expectations at 2.8%.

The data provided an element of relief surrounding US inflation and markets moved to price in just over a 50% chance that interest rates would be cut in September.

Bank of America (BoA) expects an eventual dollar retreat; “The USD is historically overvalued, with the REER (real effective exchange rate) not far from an all-time high. A scenario in which the Fed cuts rates this year is one in which US growth slows, from very strong levels in the last two years, which should also weigh on the USD.”

BoA added; “We also note that the EUR is strong with respect to non-USD currencies, suggesting that the force behind EURUSD weakness is USD strength, which in turn relies on strong US data and the Fed staying on hold for now. Indeed, the EUR is close to its historic average in real effective terms. Our baseline sees USD weakness across the G10 once the Fed starts to cut rates, with EURUSD appreciating to 1.12 by end-2024.”

Socgen expects dollar losses will take longer; “we don’t forecast a rate cut at all until Q1 2025, and given the dollar is already very expensive, we could easily be stuck in a narrow range for months to come, before eventually, the tide turns.”

Goldman Sachs sees the potential for renewed dollar gains on political grounds; “We still see a stronger USD as the most reliable impact of a potential Republican victory because it is the most consistent response to tariff risks.”

Goldman expects that Republican clean sweep would lead to slight dollar gains on the grounds of fiscal policy, but trade policy is likely to be the key element.

It added; “We still see a stronger USD as the most reliable impact of a potential Republican victory because a stronger USD is the most consistent response to tariff risks. We would expect USD strength against a broader range of major currencies than in the 2018-2019 China tariff episodes.”

With a Republican control of Congress and Trump as President, Goldman expects EUR/USD to slide 4.0%. It expects dollar losses of around 1.5% if Biden wins the presidency.
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