Euro to Dollar Exchange Rate Forecast Lowered to 1.05 at Goldman Sachs

April 28, 2024 - Written by Frank Davies

STORY LINK Euro to Dollar Exchange Rate Forecast Lowered to 1.05 at Goldman Sachs

Goldman Sachs has lowered its 6-month Euro to Dollar (EUR/USD) exchange rate forecast to 1.05 from 1.10 previously.

Other investment banks expect a firm dollar, but consider that a EUR/USD slide to parity is less likely due to evidence of a recovery in the Euro-Zone economy.

Although EUR/USD edged higher during the week it failed to hold above 1.07 and settled around 1.0680.

According to Goldman; “Dollar assets could continue to offer superior total returns that would boost demand for the currency.”

It added; “While we still anticipate that more balanced growth will weigh on the strong Dollar over time, and policymakers will surely take recent currency moves into account to limit further Dollar strength, our revised forecasts reflect our view that eventual depreciation has been downgraded and delayed.”

Markets are even more confident that the Federal Reserve will not be able to sanction an early cut interest rates.

In this context, there has been greater attention on the medium-term outlook.

The US growth-related data was weaker than expected during the week with third-quarter annualised GDP growth at 1.6% from 3.4% the previous quarter and below consensus forecasts of 2.5%.

During the week, there was fresh speculation that Trump, if elected in November would push for a weaker dollar.

MUFG expects little immediate impact, but added; “However, doubts could grow about that if Trump was to pursue a more explicit weak currency policy.”

MUFG also noted the potential for political pressure on the Fed; “The ‘elephant in the room’ so to speak in focusing on FX policies is of course the Fed and if complaints about the dollar’s strength are to grow it will inevitably lead to increased criticism by Trump of Fed Chair Powell and makes it even more likely that Trump would replace Powell with someone more aligned to policies that would lead to dollar depreciation.”

It added; “Increased politicisation of the US dollar with the dollar at these more elevated levels will certainly act to reduce speculative dollar buying at stronger and stronger levels.”

The April German IFO index strengthened for the third successive month which helped trigger a stronger assessment of the German economy.

Evidence of a Euro-Zone recovery would have potential currency-market implications, especially if it coincides with evidence of a weaker US economy.

MUFG commented; “If the improving surveys are backed up by hard evidence of a pick-up in growth in Q2 that could help to provide more support for the EUR heading into the 2H of this year. In these circumstances, it will become more challenging for EUR/USD to keep moving lower as it moves closer to the lows from last autumn between 1.0400 and 1.0500.”

It added; “Unlike last year, the reversal of the negative energy price shock in Europe should help to prevent the pair from moving even closer to parity.”

Socgen also noted the potential for a change in the current market narrative; “the market is left with nagging doubts about two key economic themes – the dire situation of the German economy thanks to the war in Ukraine, higher gas prices and a weaker Chinese economy; and US exceptionalism.

US PMI business confidence data was weaker than expected.

Socgen commented; “The continued strength of the US economy has been more surprising and has been the driver of dollar strength and Fed re-pricing. Today’s data may only tell us that the situation in Europe is improving, and slowly at that. But the data and reaction do highlight the markets’ sensitivity to any news that points to a change in the ‘US is awesome, Germany is rubbish’ story that has dominated FX and rates markets.”

Credit Agricole; “given that the US rates markets are pricing in less than two rate cuts this year, we believe that it would take a rather strong inflation print to push market expectations even further in favour of a less dovish Fed stance.”

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TAGS: Euro Dollar Forecasts