Euro to Dollar Forecast 2024: EUR/USD Retreats on January Blues

January 2, 2024 - Written by John Cameron

STORY LINK Euro to Dollar Forecast 2024: EUR/USD Retreats on January Blues

The Euro to Dollar (EUR/USD) exchange rate posted a 5-month high just below 1.1140 on December 28th before a retreat to around 1.1040 on the final trading day of 2023.

The Euro posted further sharp losses on Tuesday with EUR/USD dipping to just below the 1.1000 level.

Seasonal elements will be potentially important with the Euro tending to strengthen during December and then losing ground in January.

Overall confidence in the Euro-Zone economy remains very fragile and near-term data releases will be watched closely.

According to BNY Mellon; “The biggest focus in the week ahead will be on the US jobs market as data from JOLTS to jobless claims and unemployment set the tone for soft-landing hopes. The ECB and rate cuts will similarly pivot on the data ahead for inflation.”

The Euro-Zone PMI manufacturing index was revised marginally higher to 44.4 according to the final reading from the flash reading of 44.2.

This was a 7-month high for the headline index, although the output index edged lower to a 2-month low.

The German data recorded an 8-month low while the French data posted a 43-month low for the month.

Stocks of purchases were depleted more rapidly and to one of the greatest degrees in the survey history.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented; “The pivotal turning point in the inventory cycle is a key factor for initiating a recovery. Our projection places this anticipated shift in the first half of 2024, although the present indicators do not yet support this expectation.”

Overall business confidence did recover to an 8-month high.

Dr. Cyrus de la Rubia added; “This optimism could be rooted in the anticipation of a potential decline in interest rates, which is a significant issue for the manufacturing sector, known for its capital and debt-intensive nature. Additionally, companies may also look for lower energy prices as another potential factor contributing to their hopeful outlook.”

According to Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics; "Euro zone manufacturing remained under pressure at the end of 2023.”

He added; “Looking ahead, the slight increase in optimism regarding the year-ahead outlook is a silver lining, but a slim one."

According to MUFG; “The dollar index is now approaching important technical support levels at just above the 100.00-level. It hasn’t closed below the 100.00-level on a monthly closing price basis since March 2022.”

The bank added; “While we expect the US dollar to weaken further in 2024, we see room for a temporary bounce at the start of this year following the heavy sell-off in recent months.”

Global economic trends will also be important for the Euro.

China’s manufacturing PMI index retreated to 49.0 for December from 49.4 previously and below consensus forecasts of 49.6.

The non-manufacturing index edged higher to 50.4 from 50.2 previously.

The Caixin manufacturing PMI index did edge higher to 50.8 from 50.7 previously.

According to the statistics bureau; "The current external environment is increasingly complex, severe, and uncertain. Some companies in the survey reported that reduced overseas orders and insufficient domestic effective demand are the main difficulties faced by the companies."

According to MUFG; “Overall, the official PMI surveys continue to send a cautionary signal over the health of China’s economy. After growth picked up in Q3, it appears that China’s economy slowed heading into the end of last year.”

It added; “Ongoing investor concerns over weak cyclical momentum in China remain a headwind for the renminbi and Asian currencies at the start of this year. China’s equity market finished close to year date lows in 2023.”

China concerns will tend to undermine the Euro, although there will also be additional pressure for stimulus measures from Beijing.

Hwabao Trust economist Nie Wen, commented; "We must step up policy support, otherwise the trend of slowing growth will continue."

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TAGS: Euro Dollar Forecasts