Currency Forecast - EUR: Conditions Improving, But Weakness To Persist - AUG 2017


BMI View: While we have revised up modestly our 2017 forecast for the euro, we expect the longer-term trend to remain one of weakness . Despite some improvements in the eurozone's macroeconomic backdrop, fiscal concerns will limit the ability of the European Central Bank to tighten policy, weighing on the euro by keeping nominal and real interest rate spreads in favour of the US dollar.

Short-Term Outlook (three-to-six months)

We have revised up modestly our end-2017 euro forecast from USD1.02/EUR to USD1.03/EUR, and our average 2017 forecast from USD1.03/EUR to USD1.05/EUR. The euro has been supported by several factors in early 2017: fading hopes of growth-friendly policies being enacted by the Trump administration and concurrent declines in US Treasury yields and rate expectations, surprisingly strong eurozone economic data in H117, market-friendly election results in the Netherlands and France, and what was interpreted as a somewhat hawkish shift in European Central Bank (ECB) forward guidance at its March meeting.

Range-Bound For Now
Eurozone - Exchange Rate, USD/EUR (Weekly)
Source: Bloomberg, BMI

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