Euro to Dollar FX Outlook: 1.05 by end of 2024 say Credit Agricole

January 28, 2024 - Written by David Woodsmith

STORY LINK Euro to Dollar FX Outlook: 1.05 by end of 2024 say Credit Agricole

Foreign currency experts at Credit Agricole predict that the Euro to Dollar exchange rate will weaken to 1.05 at the end of 2024.

After initial hesitation and vulnerability with the threat of 1.0715/25, ING still expects that EUR/USD will strengthen to 1.15 by the end of 2024.

EUR/USD dipped to 6-week lows just below 1.0815 during the week before a tentative recovery to 1.0865.

The outlook for Federal Reserve and ECB policies will remain a key element.

Credit Agricole notes that the dollar has secured a net gain despite expectations of Fed rate cuts. According to the bank; “We believe that one reason for that is the fact that markets are expecting a concerted global monetary easing that has left the USD’s relative rate appeal little changed.”

It added; “Many FX clients also think that too many Fed rate cuts are expected this year, suggesting that many negatives are already in the price of the USD.”

The ECB made no changes to interest rates at the latest meeting, in line with consensus forecasts. Bank President Lagarde reiterated that the bank is data-dependent and ruled out an early rate cut.

Markets are, however, convinced that the ECB will cut rates by April while the Federal Reserve interest rate debate remains wide open.

Attention will now focus on this week’s Federal Reserve policy decision.

For the latest PMI business confidence data, both manufacturing and services were in contraction territory.

HSBC discussed the latest PMI data; “The average prices charged for goods and services rose at their fastest pace since May 2023. The survey also revealed pressures on supply chains, and the compilers of the survey suggest companies have been able to pass on higher input costs.

It added; “So, we have PMIs showing contracting activity and rising inflation, which is not a combination likely to induce lasting EUR upside.”

According to NBF; “A rate cut could come as soon as April and easing could easily match Fed expectations. As such, the Euro could drawdown in the coming quarters in a risk-off environment and may recover some ground later this year assuming the outlook improves.”

UBS expects relatively narrow ranges; “Most G10 currency pairings are now back in familiar ranges (e.g., EUR/USD between 1.0500 and 1.1000), where we expect them to remain in the coming months.”

The bank added; “Better relative growth in the US than in Europe and a partial reversal of US rate cut expectations should support the Greenback in the near term. However, the Fed’s dovish pivot is likely to limit the extent of any rallies and sets the tone for the Dollar to weaken into year-end.”

HSBC expects a firm underlying dollar tone; “Geopolitical risks will also carry scope to add further momentum to recent market moves. Beyond these global headwinds, the EUR and GBP also face domestic economic challenges, for which a ‘high for longer’ rate outlook seems unlikely to offer sustained support for these currencies.”

According to Danske Bank; “We have recently discussed the possibility of a USD rally in Q1 due to stronger-than-expected US figures relative to the rest of the world. So far, this has played out well with strong US PMIs and Q4 GDP figures. We will have more clarity next week with releases such as ISM and nonfarm payrolls, in addition to the Fed meeting.”

The bank considers that markets should not have a narrow focus on ECB rate decisions; “We believe that the broader pricing in the G10 could be more decisive for the cross, as we perceive current market expectations for rate cuts to be excessive.

It added; “We still maintain our bias towards selling EUR/USD on rallies in the near term, and we forecast EUR/USD at 1.07/1.05 on a 6/12M horizon. We also remain short EUR/USD via a 6M put spread as part of our FX Top Trades 2024.”

Nordea notes there will be pressure for a March Fed rate cut if there are notably weak inflation prints over the next few weeks, but it considers the central bank will be patient.

Nordea, however, noted medium-term inflation risks; “The combination of monetary and fiscal policy easing is setting up the economy for a big growth impulse at a time when economic conditions are already strong.

In this context, it noted; “the risk is the Fed will wait and, in the meantime, inflation will start to move higher again on increases freight rates and renewed wage pressure. In the latter case, we might not see rate cuts this year at all.”

According to Nordea; “This would be the worst-case scenario for the Fed. It might not be the most likely scenario, but recent economic data is telling us, that it should not be ruled out.”

At this stage, however, the bank still sees a 1.15 for EUR/USD at the end of 2024.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Euro Dollar Forecasts