April 12, 2025 – Written by Ben Hughes
STORY LINK Euro to Dollar Forecast: Three-Year Best, EUR/USD at 1.20 Possible
The Euro to Dollar exchange rate (EUR/USD) surged to 3-year highs at 1.1470 on Friday before a corrective retreat to near 1.13.
MUFG is another investment bank to have changed its stance and that, with a risk that dollar confidence is eroded further, 1.20 in EUR/USD is now reachable.
According to MUFG; “There are numerous factors that have created these financial market conditions and until some of these are addressed it is difficult to see a turnaround in current market direction.”
Higher US yields have not helped the dollar.
MUFG added; “If we are possibly entering a crisis of confidence period, then there tends to be a breakdown in the normal financial market variables that drive FX. This is happening to some degree now with short-term rate spread moves not aligned to the scale of dollar sell-off.”
The latest data triggered further stagflation fears in the US economy.
The University of Michigan consumer confidence index declined sharply to 50.8 for April from 57.0 the previous month and below consumer forecasts of 54.0. This was the lowest reading since November 2022.
Both the current conditions and expectations components posted sharp declines on the month.
Surveys of Consumers Director Joanne Hsu commented; “Consumer sentiment fell for the fourth straight month, plunging 11% from March.”
She added; “Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month.”
The 1-year inflation expectations index jumped again to 6.7% from 5.0%. This was the fourth successive jump and the highest reading since 1981.
The combination of recession fears and higher inflation would not be favourable for the dollar.
MUFG considers that bond-market vulnerability is another key element.
According to the bank; “We believe it’s no coincidence that the turmoil has unfolded in the same week that we have had developments in regard to Trump’s proposed tax cut plans.
The House has agreed a budget that extends the 2027 tax cuts. According to the Congressional Budget Office, fiscal measures overall would increase the US debt by at least $5trn over 10 years
According to MUFG; “The US fiscal deficit is simply out of control and there appears little appetite in Congress amongst Republicans to tackle the issue.”
In this context, a US-China trade war poses significant risks to the Treasury market and the dollar.
China holds around $700bn in Treasuries and any selling would risk another jump in yields.
According to MUFG; “it remains unclear to what extent UST bond holdings have been reduced. Still, all it would take in current market conditions would be for China to hint at action to likely trigger another wave of volatility and selling.”
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
