Prediction: What to Expect from the Euro and Dollar in 2024 – Analysis and Forecasts – December 22, 2023

Traditionally, we publish exchange rate forecasts from major global financial institutions at the turn of the outgoing and incoming years. By maintaining these practices over the years, we can not only look into the future, but also reflect on past predictions of experts and evaluate their accuracy.

2022: Beginning

Just as the world adapted to the quarantine conditions caused by the coronavirus, war entered the life of the planet. Russia’s armed invasion of Ukraine in February 2022 and subsequent anti-Russian sanctions have exacerbated economic problems in many countries, even those far removed from the region, and triggered increased inflation.

The proximity of EU countries to conflict zones, their high dependence on Russian natural energy resources, nuclear threats and the risk of the conflict spreading to their territories have dealt a serious blow to the eurozone economy. In these circumstances, the European Central Bank (ECB) had to act as cautiously as possible to avoid a complete collapse. The United States is in a much better position by allowing the Federal Reserve to begin its rate hike cycle on March 16 to reduce inflationary pressures. This acted as a catalyst for the dollar to strengthen. July 14th EUR/USD It fell below the parity line of 1.0000 for the first time in 20 years and reached a low of 0.9535 on September 28. In mid-July, the European Central Bank also began gradually raising the euro rate. As a result, EUR/USD New Year 2023 was entered at the 1.0700 level.

2023: Find out whose prediction was more accurate

The COVID-19 pandemic began to subside, and on May 5, WHO declared that COVID-19 was no longer a global emergency. Gradually, several countries have begun to ease quarantine restrictions. Military action in Ukraine has turned into a protracted conflict. The fight against inflation is slowly starting to show signs of success, with the economy adjusting to rising interest rates and high energy prices. A global catastrophe has been averted, and voices predicting a soft landing, especially for the U.S. economy and the Eurozone, have grown louder.

The fluctuation range will reach its maximum in 2022. EUR/USD It exceeded 1,700 points, but in 2023, this figure was halved to 828 points. The pair reached its peak on July 18, rising to 1.1275. A bottom was found at 1.0447 on October 3, and December ended in the 1.0900-1.1000 range (at the time of writing this review), not far from January values.

So what predictions have experts made for 2023? The furthest thing from reality was the Internationale Nederlanden Groep’s prediction. ING is confident that all pressure factors from 2022 will persist into 2023. High energy prices will continue to weigh heavily on the European economy. Additional pressure would be applied if the US Federal Reserve stopped printing before the ECB. According to analysts at this major Dutch banking group, interest rates were forecast at 0.9500 euros per dollar in the first quarter of 2023, and could rise thereafter, reaching 1.0000 euros in the fourth quarter.

The Economic Forecast Institute experts were accurate about this situation. EUR/USD 1st quarter dynamics: They predicted a rise to 1.1160 (actually it rose to 1.1033). However, they expected the pair to decline steadily, reaching 1.0050 by the end of the third quarter and ending the year at 0.9790. Here they were greatly mistaken.

But it wasn’t just the bears that were wrong. The bulls of the Euro/Dollar pair also made an error. For example, French financial conglomerate Societe Generale voted for a bearish and bullish dollar pair. However, their prediction of a rise above 1.1500 by the end of the first quarter was too extreme. Deutsche Bank’s strategists allowed for a swing in the 1.0800-1.1500 range. However, we believe a rise in the ceiling for these pairs is only possible if the Fed begins to ease monetary policy in the second half of 2023. from July).

The most accurate forecasts came from Bank of America and Germany’s Commerzbank. According to Bank of America’s baseline scenario, the US dollar was expected to remain strong in early 2023 and then begin to gradually weaken, pushing the EUR/USD pair up to 1.1000 after a brief pause by the Federal Reserve. Commerzbank said: “Taking into account the change in the Fed’s interest rate expectations and assuming that the ECB refrains from cutting interest rates (…) EUR/USD “2023 will be 1.1000,” was the verdict of the strategists of this conglomerate.

2024: What can we expect in the new year?

What awaits the euro and dollar in 2024? It is important to note that forecasts vary considerably due to the numerous “surprises” that life has presented recently and the many unresolved issues left in the future. Questions remain about the geopolitical situation, the direction and pace of monetary policy by the Federal Reserve (Fed) and the European Central Bank (ECB), economic and labor market conditions, and how much inflation and energy prices could rise. The person who will be elected president of the United States in November, Russia’s war in Ukraine, the ongoing conflict between Israel and Hamas, and the balance of power in the U.S.-China competition were controlled. The answers to these and other questions have not yet been discovered. Due to many factors of uncertainty, experts were unable to reach a consensus.

Recent dovish comments from Federal Reserve Chairman Jerome Powell and moderately hawkish comments from ECB President Christine Lagarde have led markets to believe that the Fed will lead the way in easing monetary policy and lowering interest rates in 2024. If the market does not receive a response signal, the US dollar will fall. There will continue to be pressure. Societe Generale believes the dollar index (DXY) could fall below 100 and up to 97 points from its current 102.50 level. A Reuters poll of analysts also showed that the U.S. dollar will weaken next year. According to an Investing.com review: EUR/USD Depending on various geopolitical and macroeconomic conditions, it could potentially reach 1.1500.

Slowing U.S. economic growth, falling inflation and expectations of interest rate cuts will support stocks and bonds, according to the baseline scenario presented by UBS Wealth Management. Regarding the EUR/USD pair, UBS sees it at the 1.1200 level. Germany’s Commerzbank’s forecast also includes a high of 1.1200. Local analysts expect the euro to weaken again after temporarily strengthening against the dollar. They expect the rate to rise to 1.1200 by June 2024 and then decline to 1.0800 by March 2025.

ING economists predict that in the second half of 2024 EUR/USD The rate will still rise towards 1.1800. However, they cautioned that these forecasts are based only on the likely trajectory of Fed and ECB policy. They point out that “interest rate differentials are not the only factor determining the EUR/USD path.” Low growth rates in the euro area and political uncertainty over the reintroduction of the Stability and Growth Pact suggest that: EUR/USD It will end the year close to 1.0600, with the 2024 high level closer to 1.1500 than 1.1800.

Economists at Fidelity International, JP Morgan and HSBC do not rule out a scenario in which other regulators, such as the ECB or the Bank of England, could take the lead in easing measures before the Fed.

Goldman Sachs strategists believe the strong and stable U.S. economy will limit the dollar’s decline, although the outlook for the dollar may worsen in 2024. They wrote that the dollar remains highly valued, investors will remain “strong for a long time,” and any decline will be minimal. The U.S. economy is too strong for a 150 basis point rate cut in 2024.

Danske Bank, Westpac and HSBC also believe the dollar will strengthen against the euro and British pound by the end of 2024. ABN AMRO’s forecast for the end of next year is 1.0500, and the Economic Forecast Office forecasts it at 1.0230.

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In the ancient Chinese military book ’36 Strategies’ it is written, “He who tries to predict everything loses his guard.” In fact, it is impossible to predict everything. But I can say one thing for sure. The coming 12 months will be just as full of unexpected surprises as the previous ones. So stay alert and luck will be on your side.

Happy New Year 2024! It promises to be very interesting.

NordFX Analysis Group

https://nordfx.com/

Please note: This material is not a recommendation or guide to investing in the financial markets and is for informational purposes only. Trading in the financial markets is risky and can result in complete loss of deposited funds.

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