FX analysts at Danske Bank, UniCredit, UOB, and ING suggest that the near-term direction of the EUR/USD exchange rate is somewhat uncertain, with the potential for both downside risks and temporary upticks.
Factors such as the state of the US economy, the next central bank meetings, and risk-off sentiment related to the US debt-ceiling situation are expected to play a significant role.
The robustness of the US economy, tighter USD liquidity conditions, and technical indicators all suggest a possible downside risk.
However, the potential for a multi-quarter or even multi-year decline of the dollar could indicate a longer-term upward trend for the EUR/USD.
Nevertheless, this potential surge is not expected to be a smooth ride, with the US banking crisis and the risk of a US Treasury default posing considerable risks.
Euro to Dollar Exchange Rate Forecast: A Balance of Uncertainties
Edoardo Campanella, Economist at UniCredit, believes that the financial market is currently in a state of flux due to mixed economic data, especially from the US.
This, in turn, affects the FX market, leading to a lack of clarity on the future direction of EUR/USD.
"Seesawing remains the theme in the FX market, primarily because the next central bank meetings are quite far away," says Edoardo Campanella.
He adds, "EUR-USD remains above 1.08 but a sustained rebound even above 1.09 looks quite difficult currently and the picture is similar for GBP-USD after attempts to break above 1.2550 failed again."
Echoing these thoughts, Mohamad Al-Saraf, Associate, FX and Rates Strategy at Danske Bank, also expresses a bearish stance on the Euro to Dollar rate.
He cites the robustness of the US economy and tighter USD liquidity conditions as driving factors for a potential downturn.
"While we have had a long-held bearish stance on the EUR/USD on the strategic horizon, we now also find it increasingly likely that the cross could head lower in the near-term," says Al-Saraf.
Al-Saraf goes on to explain the irony of the current economic situation, "Risk-off sentiment caused by the US debt-ceiling situation could ironically also weigh on the EUR/USD in the near-term."
Long-Term Forecast: A Multi-Quarter Dollar Decline?
Francesco Pesole, FX Strategist at ING, holds a long-term view that suggests a multi-quarter, if not multi-year, decline of the dollar.
The strategist cites the end of the Fed tightening cycle and a potential credit crunch leading to a US recession as main drivers for this prediction.
"Based on our view that the Fed tightening cycle is over and that a credit crunch makes a US recession more likely, we believe the dollar is about to embark on a multi-quarter (if not multi-year) decline," says Francesco Pesole.
He further states that such a decline may be realised in the second half of 2023, emphasising a potential easing of policy by the Federal Reserve.
"The bulk of that dollar decline may come in 2H23 as the US disinflation story builds and the Fed front-loads easing with 100bp of cuts in 4Q23. That could see EUR/USD at 1.20 end year," says Pesole.
However, Pesole also underscores that this journey to a declining dollar will not be devoid of risks, particularly highlighting the US banking crisis and the risk of a US Treasury default as key threats.
"The most pressing risks are the US banking crisis and the risk of a US Treasury default in the June/July window. Historically, stress in US money markets has triggered a temporary surge in the dollar," he adds.
Despite potential turmoil, Pesole maintains that any substantial drop in the EUR/USD exchange rate would be temporary, "Any flash crash below 1.05 should be temporary."
Factors such as the state of the US economy, the next central bank meetings, and risk-off sentiment related to the US debt-ceiling situation are expected to play a significant role.
The robustness of the US economy, tighter USD liquidity conditions, and technical indicators all suggest a possible downside risk.
However, the potential for a multi-quarter or even multi-year decline of the dollar could indicate a longer-term upward trend for the EUR/USD.
Nevertheless, this potential surge is not expected to be a smooth ride, with the US banking crisis and the risk of a US Treasury default posing considerable risks.
Euro to Dollar Exchange Rate Forecast: A Balance of Uncertainties
Edoardo Campanella, Economist at UniCredit, believes that the financial market is currently in a state of flux due to mixed economic data, especially from the US.
This, in turn, affects the FX market, leading to a lack of clarity on the future direction of EUR/USD.
"Seesawing remains the theme in the FX market, primarily because the next central bank meetings are quite far away," says Edoardo Campanella.
He adds, "EUR-USD remains above 1.08 but a sustained rebound even above 1.09 looks quite difficult currently and the picture is similar for GBP-USD after attempts to break above 1.2550 failed again."
Echoing these thoughts, Mohamad Al-Saraf, Associate, FX and Rates Strategy at Danske Bank, also expresses a bearish stance on the Euro to Dollar rate.
He cites the robustness of the US economy and tighter USD liquidity conditions as driving factors for a potential downturn.
"While we have had a long-held bearish stance on the EUR/USD on the strategic horizon, we now also find it increasingly likely that the cross could head lower in the near-term," says Al-Saraf.
Al-Saraf goes on to explain the irony of the current economic situation, "Risk-off sentiment caused by the US debt-ceiling situation could ironically also weigh on the EUR/USD in the near-term."
Long-Term Forecast: A Multi-Quarter Dollar Decline?
Francesco Pesole, FX Strategist at ING, holds a long-term view that suggests a multi-quarter, if not multi-year, decline of the dollar.
The strategist cites the end of the Fed tightening cycle and a potential credit crunch leading to a US recession as main drivers for this prediction.
"Based on our view that the Fed tightening cycle is over and that a credit crunch makes a US recession more likely, we believe the dollar is about to embark on a multi-quarter (if not multi-year) decline," says Francesco Pesole.
He further states that such a decline may be realised in the second half of 2023, emphasising a potential easing of policy by the Federal Reserve.
"The bulk of that dollar decline may come in 2H23 as the US disinflation story builds and the Fed front-loads easing with 100bp of cuts in 4Q23. That could see EUR/USD at 1.20 end year," says Pesole.
However, Pesole also underscores that this journey to a declining dollar will not be devoid of risks, particularly highlighting the US banking crisis and the risk of a US Treasury default as key threats.
"The most pressing risks are the US banking crisis and the risk of a US Treasury default in the June/July window. Historically, stress in US money markets has triggered a temporary surge in the dollar," he adds.
Despite potential turmoil, Pesole maintains that any substantial drop in the EUR/USD exchange rate would be temporary, "Any flash crash below 1.05 should be temporary."