Euro to Dollar Week Ahead Forecast: 1.04-1.09 Ranges Over Next Three Months

June 23, 2024 - Written by David Woodsmith

STORY LINK Euro to Dollar Week Ahead Forecast: 1.04-1.09 Ranges Over Next Three Months

Nordea forecasts that the Euro to Dollar (EUR/USD) exchange rate will weaken to 1.04 on a 3-month view as the Federal Reserve rules out near-term interest rates.

After little immediate change amid political risks, ING expects limited net gains to 1.09 on a 3-month view.

EUR/USD attempted to rally at times during the week, but dipped back below 1.07 after weaker-than-expected Euro-Zone business confidence data.

The Euro-Zone PMI data was weaker than expected with the composite PMI index retreating to a 3-month low of 50.8 from 52.2 the previous month amid deterioration in manufacturing and services.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented; “Is the recovery in the manufacturing sector ending before it began?”

HSBC pointed to the latest German ZEW investor sentiment survey with the headline reading at 47.5 for June from 47.1 previously while there was a small decline in the current conditions component.

It added; “Eurozone economic activity data showed some signs of above-consensus momentum in March and April, but that has stalled in May and June. Given much of that earlier improvement in activity was built on expectations of ECB rate cuts, the sticky nature of some aspects of inflation could chip away at that confidence.”

The latest US retail sales data was weaker than expected with a 0.1% increase for May after a revised 0.2% decline for April.

Wells Fargo commented; “We look for a gradual moderation in spending to take hold as the year progresses.”

The New York and Philadelphia Fed manufacturing surveys remained weak, but the PMI data was stronger than expected with the first employment increase for three months.

ING commented on evidence of more subdued inflation pressures; “It has been a struggle, but it is starting to look like investors are swinging behind Federal Reserve rate cuts this year.

It added; “US May CPI and PPI price data are showing encouraging signals and point to another low print for the Fed’s preferred price gauge – core PCE - when it is released on 28 June. We think there is plenty of room for US short-dated yields to fall – a clear dollar negative.”

Nordea, however, does not see scope for a near-term rate cut; “We expect the Fed will only cut its interest rate once this year, compared to the market expectation of almost two interest rate cuts.

It added; “Meanwhile, we expect the ECB to cut its rate twice this year, compared to the market expectation that still does not fully price in two interest rate cuts.”

In this context, it noted; “EUR/USD we expect that EUR/USD will fall toward a yearly low level of 1.04 as it becomes increasingly evident that the ECB is embarking on a different interest rate cutting cycle than the Fed. We believe the US dollar will strengthen on a growing interest rate differential.”

Markets are also extremely wary of political developments on both sides of the Atlantic.

The US November election will come into greater focus with opinion polls still suggesting a close race between Trump and Biden.

According to HSBC; “The jury is also out on geopolitics, with the US election looming large towards the end of the year. Against this backdrop of unknowns, the USD appears better-positioned to benefit as it is a carry trade and a hedge against most currencies in uncertain times.”

ING pointed to on-going French political risks; “Were it not for events in Europe, FX markets would now be focusing on the welcome disinflation in the US and the prospects of a softer dollar. As it is, President Macron’s gamble has added some unexpected volatility into European currencies - likely to keep risk appetite in check.”

MUFG also looked at the French election; “in a scenario of RN winning an outright majority in the snap elections, EUR is likely to fall more sharply.”

Danske Bank still sees medium-term downside Euro risks; “We still believe that fundamental factors point to a lower EUR/USD in the medium term, including the structural case for stronger US growth dynamics. In the near term, we slightly favour the downside due to the EUR leg potentially remaining fragile owing to the political risk premium.”

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