Rabobank prepares revised EUR/USD forecasts as energy exposure and French fiscal risks undermine the Euro’s appeal despite ECB tightening.

Rabobank is preparing to give greater weight to Dollar resilience in its EUR/USD forecasts, arguing that Europe’s own weaknesses have helped sustain the US currency’s advance.

The Euro to US Dollar exchange rate traded around 1.1308 on Thursday, down 0.17% from Wednesday’s close, following a 2.50% decline during September.

The bank plans to publish revised projections on Friday, 2 October, after its below-consensus forecasts converged with market expectations.

“We will be looking to publish revised forecasts for EUR/USD tomorrow with more emphasis on USD resilience.”

Rabobank attributes much of the Dollar’s summer strength to the reversal from expectations of Federal Reserve cuts to rate increases.

But higher European interest rates have failed to deliver comparable support for the Euro.

“Even though the ECB brought forward its tightening cycle, and despite the resilience of the Eurozone economy this year, the market is concerned about growth risks in view of the Eurozone’s position as an energy importer.”

Investors entered the Iran war with bullish Euro positions, encouraged by Germany’s plans to expand defence and infrastructure spending.

Rabobank says those positions were rapidly unwound as the conflict began.

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France’s fiscal difficulties add to the problem, with public debt reaching 119% of GDP at the end of June ahead of its contentious 2027 Budget.

However, Rabobank cautions against treating French bond-market stress as automatic selling pressure on the Euro.

“To date, French budget woes have not had a significant impact on the single currency since sellers of French bonds have been content to roll into other EUR denominated paper.”

The broader concern is that energy costs, political uncertainty and competitive pressure from China reduce the Euro’s attraction as an alternative to the Dollar.

Friday’s forecast update will show how far Rabobank translates that assessment into revised exchange-rate targets.

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