Euro to Dollar 2026-2025 Outlook: Trend "Remains Bullish" say Scotiabank Techs

March 10, 2024 - Written by Frank Davies

STORY LINK Euro to Dollar 2026-2025 Outlook: Trend "Remains Bullish" say Scotiabank Techs

Foreign currency strategists at CIBC forecast the Euro to Dollar exchange rate (EUR/USD) to strengthen to 1.12 at the end of 2024 and 1.16 by 2025-2026.

Danske Bank still favours selling rallies; “look for strategic selling opportunities and sell on near-term rallies as the ongoing trend of strong US macro data continues.”

The Euro to Dollar (EUR/USD) exchange rate strengthened to 8-week highs at 1.0980 after Friday’s US jobs data as markets were more confident of a first-half Fed rate cut.

ING doubts the move can extend much further in the short term; “EUR/USD is trading close to the top of the range which is consistent with such a wide short-term rate gap (-125bp in the two-year swap market). That means that it can be vulnerable to near-term corrections, but also that it is starting from a good level should US rates enter a decisive dive.”

CIBC sees scope for a near-term dollar rebound, but added; “Beyond March, we have the USD profile trending lower as the economic outlook outside of North America improves. Additionally, longer-term valuations still look very unfavourable for the USD.”

US data had a softer tone during the week while Fed Chair Powell still thinks that a rate cut is within reach.

The headline increase in non-farm payrolls was again notably stronger than expected at 275,000 compared with expectations of close to 200,000, but the January increase was revised sharply lower to 229,000 from the original reading of 353,000.

There was a reported decline in the number of employed of over 180,000 and the unemployment rate increased to 3.9% from 3.7%.

As far as wages are concerned, there was a 0.1% increase after a revised 0.5% increase the previous month with a slight slowdown in the annual increase to 4.3% from 4.4%.

In congressional testimony, Fed Chair Powell indicated that rate cuts were in prospect.

According to Powell, “We’re waiting to become more confident that inflation is moving sustainably at 2%. When we do get that confidence, and we’re not far from it, it’ll be appropriate to begin to dial back the level of restriction.”

Rabobank commented; “Powell’s semi-annual testimony to Congress has not provided any further clues on the Fed’s policy rate path. Powell confirmed that policy rates have peaked and that he expects to cut this year, but the FOMC needs to see more data to gain confidence that inflation is heading sustainably toward its 2% target.”

It added; “We continue to pencil in the first rate cut in June. Once started, we expect the Fed to continue with one cut of 25 bps per quarter.”

Commerzbank sees a slightly weaker dollar bias; “The USD's upside potential is likely to be slowly exhausted, as it would take surprisingly good data – which has not been published recently – to give the Dollar an additional boost.”

It added; “At the same time, the image of a soft landing for the US economy has begun to crack.”

Commerzbank expects EUR/USD to trade at 1.10 at the end of 2024.

Rabobank sees scope for dollar gains if Trump wins in November; “Since our new economic forecasts assume a Trump victory in November, leading to a universal import tariff, we expect inflation to rebound in 2025, leading to a pause in the Fed’s cutting cycle during the course of next year.”

The ECB made no changes to interest rates at the latest policy meeting.

TD Securities commented; “As broadly expected, the ECB left policy on hold. The statement was largely as expected, with no tangible changes to the language. Inflation forecasts were revised down slightly, further suggesting that cuts are coming. President Lagarde came as close as she could to saying the ECB would not cut in April, with strong hints of June.”

It added; “We continue to forecast a break of 1.1000 to the upside in Q2, reflecting broad USD underperformance.”

MUFG also sees limited Euro gains; “April is now in our view much less likely. That implies the first rate cut by the ECB and the Fed could come within one week of each other and again reinforces the lack of divergence prospects at this juncture which we think will limit the scope for EUR/USD to sustain a break higher.”

Berenberg still sees the US economy out-performing and expects longer-term EUR/USD gains to be capped around 1.12.

Global developments will be important and there was a greater mood of optimism following the latest Chinese trade data which supported the Euro.

Nordea has examined the US money markets closely and expects that there will be a sharp decline in liquidity during the second quarter of 2024 with a substantial drop in dollar reserves.

It added; “If we are right in our calculations, the impact on financial conditions could be sizeable, in turn leading to a slowing in economic activity and sentiment.”

Tighter liquidity would tend to boost the dollar, although this could be offset by an earlier cut in US interest rates.

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TAGS: Euro Dollar Forecasts