April 20, 2025 – Written by David Woodsmith
STORY LINK Euro to Dollar Forecast: Further EUR Upside to Upper 1.16s?
Currency forecasters at Deutsche Bank expect long-term Euro to Dollar exchange rate (EUR/USD) gains to 1.25 at the end of 2027 and note the risk that gains could come quicker.
EURUSD was held below 3-year highs of 1.1470 during the week, but found strong buying below 1.1300.
EUR/USD remains well above levels that would be justified on rate differentials alone amid a loss of dollar confidence.
MUFG commented; “If those rate spreads were to reassert themselves in influencing FX, then the dollar would likely recover. It would imply EUR/USD breaking back below the 1.1000-level.”
It added; “However, we doubt that is going to happen at this juncture and it would take something more meaningful from President Trump in terms of backtracking on trade policy for the dollar to recover on a more sustained basis.”
Standard Chartered sees scope for a retreat to 1.08 this quarter; “We are of the view that the US Dollar index (DXY) is likely to rebound modestly higher from current levels.”
According to Standard Chartered; “We see the recent US Dollar weakness as a reaction to worries that US policy is likely to result in lower demand for US assets. However, a refocus on growth-positive factors, such as tax cuts and deregulation, is likely to help reduce these concerns.”
It added; “We also find it interesting that, despite several days of downward pressure, the DXY index has not yet firmly broken below 99, suggesting its post-2021 100-110 range remains intact.”
US retail sales data held firm for March, but there were significant warning signs in the latest business confidence readings with expectations of weaker activity and higher inflation.
Fed Chair Powell reiterated that he was in no rush to adjust interest rates, while stating that the tariff impact is likely to be larger than expected with weaker activity and higher inflation.
President Trump criticised Powell strongly and effectively called for him to resign.
The ECB cut interest rates by a further 25 basis points with the deposit rate at 2.25% and warnings over the Euro-Zone growth outlook were reinforced by commentary from Bank President Lagarde.
According to MUFG; “Lagarde clearly did not want to entertain for any amount of time the potential for inflation to move higher. The focus was very much on negative growth concerns which reinforces the prospect of more rate cuts ahead.”
It now sees a risk that rates will be cut to 1.50%.
According to Deutsche, fair value for EUR/USD is in the 1.25-1.30 range which will act as an anchor for the pair amid geo-political uncertainty.
It also sees the risk of sustained global diversification away from the US dollar amid political uncertainty, trade concerns and weaker growth.
Deutsche Bank considers the potential risk of substantial capital flows out of US markets.
The bank notes foreigners own $7 trillion of American fixed income and $18 trillion of American equities. For example, European portfolio holdings of US equities have risen from 5% to 20% since 2010 and that unhedged FX exposure to US assets is very high.
A substantial reallocation of assets would involve heavy dollar selling.
The bank did note that a dovish ECB policy would curb Euro gains.
UBS considers that the Euro is vulnerable to a deeper correction; “We regard the euro’s recent move as an overextension and suggest waiting for short-term setbacks before engaging in EUR longs. Once the ECB halts its easing cycle, and the Fed resumes its rate cuts, we believe conditions will be ripe for the EURUSD to move higher in the latter part of the year.”
After being bullish for the past year, HSBC is notably less confident in the dollar; “US policy uncertainty is high and is weighing on the US Dollar Index (DXY) via risk aversion. There are questions about its structural properties. After considering the US current account position, fiscal risks and holdings of US securities, we think that the structural discussion around the USD is louder, and the tail risk is higher.
It added; “Putting these together tells us that the DXY will likely be in a softer position over the coming quarters.”
Citi forecasts the euro hitting highs around $1.20 in the next six to 12 months, before the dollar could start to make a comeback.
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.
