EUR USD - FUNDAMENTAL ANALYSIS
Foreign exchange strategists across global financial institutions have been setting out their predictions for the future performance of the EUR/USD, presenting an amalgamation of analyses that span from modestly optimistic to overly bearish.
Euro-Dollar rate predictions are pinned upon factors ranging from central bank decisions, inflation metrics, and global market sentiment to regional economic performance.
Berenberg: Modest Optimism Despite Economic Weakness
Ulrich Urbahn, CFA Head Multi Asset Strategy & Research at Berenberg, sees the Euro (EUR) gaining ground against the US Dollar (USD) following the European Central Bank's (ECB) recent monetary policy decision.
"After the ECB’s monetary policy decision, the euro gained a little more than a cent and is now trading at a good USD 1.09 per euro," says Urbahn.
His stance is that the Euro (EUR) has the potential to recover, brushing aside the recent corrective phase.
However, he is cognisant of the hurdles posed by the frail economy in the Eurozone, which he sees as a drag on the currency's recovery.
Urbahn remains modestly optimistic in the long run, although this outlook is tempered by a slight downward revision in the forecast.
"In the longer term, we remain moderately optimistic for the euro. However, the economic weakness in the Eurozone is hampering the recovery," he adds.
Consequently, Urbahn now foresees a year-end EUR/USD exchange rate of 1.12, a step down from his previous 1.15 forecast.
Scotiabank: The Bite of Rising Interest Rates
Shaun Osborne, Chief FX Strategist at Scotiabank, presents a rather more cautious view on the euro's performance, pointing to the damaging effects of rising interest rates on the European economy.
He notes a dramatic fall in the Eurozone's PMI data for June, with French Services and German Manufacturing data showing significant dips, effectively signalling a stunted growth rate as the impact of interest rate hikes begins to bite.
"Weaker than expected Eurozone PMI data for June hammered the EUR. French Services data fell to 48 (52.5 in May), pulling the Composite reading to 47.3 (from 51.2). German Manufacturing slumped to 41 (43.2 last) and the Composite reading dipped to 50.8 (from 53.9)," says Osborne.
Nevertheless, the analyst still anticipates the European Central Bank (ECB) to follow through with rate hikes in July, despite this being in the face of weaker growth.
"Markets have tempered ECB expectations as a consequence but policymakers are still very likely to deliver on hikes in July at least. Weaker growth is needed to break core inflation pressures," he adds.
Danske Bank: The Force of US Yield and Rate Increases
Danske Bank's Analyst Kirstine Kundby-Nielsen gives a more detailed view of the shifting global macroeconomic landscape.
The analyst points to the increased US yields and the markets' anticipation of a longer period of elevated interest rates as the principal drivers of the EUR/USD exchange rates' slight downward drift.
The strategist also highlights the comments from Federal Reserve Chair Jerome Powell about the potential need for one or two more US rate increases in 2023 as a significant factor affecting the exchange rate.
"EUR/USD drifted slightly lower towards 1.0950 on higher US yields and global markets generally pricing a 'higher for longer' interest rate environment," says Kundby-Nielsen.
Highlighting the increasing likelihood of a rate hike from the Fed, she adds, "The 2-year US Treasury yield hit the highest level since March, and the market implied likelihood of a 25bp hike from the Fed in July increased to above 80%."
The strategic analyst further underlines the market response to Powell's comments on the potential for further rate increases this year.
With such economic dynamics in play, Kundby-Nielsen indicates that Danske Bank has assumed a short position on the EUR/USD spot, expecting the underlying fundamentals to swing in favour of the USD.
Credit Agricole: The ECB's Unfinished Rate Hike Business
Valentin Marinov, Head of G10 FX Strategy at Credit Agricole, sheds light on the relatively stronger performance of the euro against other major currencies.
According to Marinov, this is attributable to the increasing market expectations of further rate hikes following the June ECB meeting.
"The EUR was able to outperform other majors like the USD, JPY and CHF as well as recover vs the GBP in recent days," says Marinov.
He postulates that the attractiveness of the euro derives from an anticipation that the ECB is not done with hiking policy rates.
"This could be made quite apparent by next week’s Eurozone HICP data, which may show that core inflation has re-accelerated in June," he adds.
Marinov forecasts that if such data convinces markets to expect more aggressive ECB rate hikes, the EUR could regain more ground.
Yet, he notes potential obstacles, including pre-emptive market pricing of ECB tightening, the EUR's record high strength, and possible negative surprises from the preliminary Eurozone PMIs for June.
MUFG: The Return to Pre-Ukraine Levels
Last but not least, Lee Hardman, Senior Currency Analyst at MUFG, takes a long-term perspective, seeing the recent rebound of the EUR against the USD as part of a greater bullish trend.
He states that the EUR has made up for most of its May sell-off, reversing the trend to climb back up.
He credits the Federal Reserve's decision to halt the rate hike cycle and the ECB's increasing focus on the core inflation outlook as crucial to this rebound.
"The EUR has rebounded against the USD so far this month and in the process has reversed most of sell-off in May," says Hardman.
He forecasts a return to pre-Ukraine crisis levels, expecting the pair to move back to the region of 1.1500.
"The run of higher highs (in January and April) followed by higher lows (in March and May) so far this year highlights that the bullish trend remains in place," he adds.
Nonetheless, Hardman does anticipate that further USD corrections are likely unless supported by stronger US economic data.
This, combined with an expected uptick in Eurozone's core inflation over the summer, could prompt the ECB to consider additional rate hikes in September.
Euro-Dollar rate predictions are pinned upon factors ranging from central bank decisions, inflation metrics, and global market sentiment to regional economic performance.
Berenberg: Modest Optimism Despite Economic Weakness
Ulrich Urbahn, CFA Head Multi Asset Strategy & Research at Berenberg, sees the Euro (EUR) gaining ground against the US Dollar (USD) following the European Central Bank's (ECB) recent monetary policy decision.
"After the ECB’s monetary policy decision, the euro gained a little more than a cent and is now trading at a good USD 1.09 per euro," says Urbahn.
His stance is that the Euro (EUR) has the potential to recover, brushing aside the recent corrective phase.
However, he is cognisant of the hurdles posed by the frail economy in the Eurozone, which he sees as a drag on the currency's recovery.
Urbahn remains modestly optimistic in the long run, although this outlook is tempered by a slight downward revision in the forecast.
"In the longer term, we remain moderately optimistic for the euro. However, the economic weakness in the Eurozone is hampering the recovery," he adds.
Consequently, Urbahn now foresees a year-end EUR/USD exchange rate of 1.12, a step down from his previous 1.15 forecast.
Scotiabank: The Bite of Rising Interest Rates
Shaun Osborne, Chief FX Strategist at Scotiabank, presents a rather more cautious view on the euro's performance, pointing to the damaging effects of rising interest rates on the European economy.
He notes a dramatic fall in the Eurozone's PMI data for June, with French Services and German Manufacturing data showing significant dips, effectively signalling a stunted growth rate as the impact of interest rate hikes begins to bite.
"Weaker than expected Eurozone PMI data for June hammered the EUR. French Services data fell to 48 (52.5 in May), pulling the Composite reading to 47.3 (from 51.2). German Manufacturing slumped to 41 (43.2 last) and the Composite reading dipped to 50.8 (from 53.9)," says Osborne.
Nevertheless, the analyst still anticipates the European Central Bank (ECB) to follow through with rate hikes in July, despite this being in the face of weaker growth.
"Markets have tempered ECB expectations as a consequence but policymakers are still very likely to deliver on hikes in July at least. Weaker growth is needed to break core inflation pressures," he adds.
Danske Bank: The Force of US Yield and Rate Increases
Danske Bank's Analyst Kirstine Kundby-Nielsen gives a more detailed view of the shifting global macroeconomic landscape.
The analyst points to the increased US yields and the markets' anticipation of a longer period of elevated interest rates as the principal drivers of the EUR/USD exchange rates' slight downward drift.
The strategist also highlights the comments from Federal Reserve Chair Jerome Powell about the potential need for one or two more US rate increases in 2023 as a significant factor affecting the exchange rate.
"EUR/USD drifted slightly lower towards 1.0950 on higher US yields and global markets generally pricing a 'higher for longer' interest rate environment," says Kundby-Nielsen.
Highlighting the increasing likelihood of a rate hike from the Fed, she adds, "The 2-year US Treasury yield hit the highest level since March, and the market implied likelihood of a 25bp hike from the Fed in July increased to above 80%."
The strategic analyst further underlines the market response to Powell's comments on the potential for further rate increases this year.
With such economic dynamics in play, Kundby-Nielsen indicates that Danske Bank has assumed a short position on the EUR/USD spot, expecting the underlying fundamentals to swing in favour of the USD.
Credit Agricole: The ECB's Unfinished Rate Hike Business
Valentin Marinov, Head of G10 FX Strategy at Credit Agricole, sheds light on the relatively stronger performance of the euro against other major currencies.
According to Marinov, this is attributable to the increasing market expectations of further rate hikes following the June ECB meeting.
"The EUR was able to outperform other majors like the USD, JPY and CHF as well as recover vs the GBP in recent days," says Marinov.
He postulates that the attractiveness of the euro derives from an anticipation that the ECB is not done with hiking policy rates.
"This could be made quite apparent by next week’s Eurozone HICP data, which may show that core inflation has re-accelerated in June," he adds.
Marinov forecasts that if such data convinces markets to expect more aggressive ECB rate hikes, the EUR could regain more ground.
Yet, he notes potential obstacles, including pre-emptive market pricing of ECB tightening, the EUR's record high strength, and possible negative surprises from the preliminary Eurozone PMIs for June.
MUFG: The Return to Pre-Ukraine Levels
Last but not least, Lee Hardman, Senior Currency Analyst at MUFG, takes a long-term perspective, seeing the recent rebound of the EUR against the USD as part of a greater bullish trend.
He states that the EUR has made up for most of its May sell-off, reversing the trend to climb back up.
He credits the Federal Reserve's decision to halt the rate hike cycle and the ECB's increasing focus on the core inflation outlook as crucial to this rebound.
"The EUR has rebounded against the USD so far this month and in the process has reversed most of sell-off in May," says Hardman.
He forecasts a return to pre-Ukraine crisis levels, expecting the pair to move back to the region of 1.1500.
"The run of higher highs (in January and April) followed by higher lows (in March and May) so far this year highlights that the bullish trend remains in place," he adds.
Nonetheless, Hardman does anticipate that further USD corrections are likely unless supported by stronger US economic data.
This, combined with an expected uptick in Eurozone's core inflation over the summer, could prompt the ECB to consider additional rate hikes in September.
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