Euro to Dollar Price Forecast: EUR Demand on Dips as USD Strength Faces Challenge
– Written by
David Woodsmith
STORY LINK Euro to Dollar Price Forecast: EUR Demand on Dips as USD Strength Faces Challenge
The Euro to Dollar exchange rate (EUR/USD) remained supported above the 1.1400 level as investors continued to buy dips despite conflicting views over the outlook for US interest rates.
While some banks expect stronger US growth and a more hawkish Federal Reserve to support the Dollar, others argue that slowing inflation and a weakening labour market will eventually limit further gains.
EUR/USD Forecasts: Demand on dips
Danske Bank still expects that the Euro to Dollar (EUR/USD) exchange rate will retreat to 1.12 on a 12-month view as yields favour the dollar.
Scotiabank, however, continues to back gains to 1.20 by the end of this year as the dollar loses ground.
EUR/USD was held in relatively tight ranges during the week with support below the 1.14 level.
According to Danske Bank; “We maintain our downward-sloping EUR/USD forecast profile unchanged as we continue to see both tactical and structural downside potential for the cross. We expect US real economic growth to outpace the euro area by a wide margin this year and expect the Fed to tighten its monetary policy more than the ECB.”
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It added; “As an energy net exporter, US is better insulated against renewed energy supply shocks than the euro area.”
ING commented; “In the absence of forward guidance, US data is going to have a bigger say in FX. ING’s core call is that the data will not support a Fed hike this year. Unchanged Fed policy, particularly at the September FOMC meeting, can see EUR/USD trading back to 1.17.”
Danske Bank commented on interest rates; “Over the next year, we forecast two rate hikes from the Fed, and one more from the ECB. In contrast, as energy prices rose in July, markets have increased their expectations of ECB hikes relatively more, which has led to a tightening in the relative rate spreads.”
It added; “We do not agree with the latest shift in pricing and instead see relative monetary policy as a negative driver for EUR/USD going forward.”
HSBC noted risks; “With markets leaning towards fewer hikes and inflation pressures moderating, EUR-USD faces headwinds which could strengthen if shipping through the Strait of Hormuz does not normalise.”
ING commented on the potential scenarios; “At this stage, risks are clearly skewed to the upside for both FX volatility and the dollar. The longer oil prices only partially price a new supply shock, the greater the risk of non-linear rallies.”
It added; “But there is also a realistic path towards Middle East de-escalation, lower oil prices and more dovish flexibility at the front end of the USD curve. That would ultimately point to a weaker dollar across the board. This remains our baseline for after the summer, although we acknowledge that the near-term backdrop looks far less supportive for USD bears.”
Importantly, Scotiabank is not backing Fed rate hikes; “Policymakers now face a more difficult balance: inflation remains persistent, while household demand is slowing and the labour market is weakening. In our forecast, this pushes rate cuts later, though we still expect the Fed to move policy back toward a more neutral stance next year.”
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TAGS: Euro Dollar Forecasts
