Euro to remain weak, however keep away from parity to USD for now: Reuters ballot

By Sarupya Ganguly

BENGALURU (Reuters) – A retreating euro will stay weak within the close to time period, trapped between political ructions constructing in France and anticipated new U.S. tariffs early subsequent 12 months which are boosting the greenback’s attract, a Reuters ballot of market strategists discovered.

Whereas there appeared nearly no prospect for a rebound quickly, most strategists have been nonetheless satisfied the euro wouldn’t fall to parity with the U.S. greenback within the coming three months, primarily as a result of a whole lot of dangerous information is already priced in.

With France’s authorities prone to collapse in a while Wednesday after far-right and left-wing events submitted no-confidence motions in opposition to Prime Minister Michel Barnier, the euro has nearly no likelihood of recovering any of the practically 6% loss it has suffered since late September.

Euro zone progress issues, together with stronger prospects for extra European Central Financial institution rate of interest cuts in coming months, pushed the only foreign money to a two-year low of $1.03 in late November.

Rate of interest futures are pricing in over 1.5 share level extra of ECB price reductions by end-2025, twice the quantity predicted for the U.S. Federal Reserve, the place expectations have been in retreat on revived home inflation dangers.

Median forecasts of practically 70 foreign money strategists in a Dec. 2-3 Reuters ballot on the euro, presently buying and selling round $1.05, confirmed it there in three months and round 1% decrease at $1.04 in six, markedly decrease than $1.10 and $1.11 in a November survey.

“There are distinct explanation why the euro is weak, very a lot linked to structural and political points going through each France and Germany. A urgent query is whether or not these issues will stay confined to France or if there will probably be a component of contagion,” mentioned Jane Foley, Rabobank’s head of FX technique.

“Germany too appears to be on the again foot, presently coping with stagflation – an issue it has been unable to shake off – which isn’t a great signal for the euro.”

NO PARITY TO THE U.S. DOLLAR YET

Nonetheless, solely a handful of strategists predicted of their given forecasts the euro would equal or fall under the greenback inside six months. The final time it did so was between September and November 2022, the place it largely traded under the dollar.

Requested to price the probabilities of the frequent foreign money reaching parity to the greenback over the approaching three months, a near-60% majority, 24 of 42, mentioned it was ‘low’.

“Within the subsequent few months, the probabilities of parity are comparatively low given simply how excessive euro bearishness already is, particularly within the relative rate-cut pricing for the Fed versus the ECB,” mentioned Erik Nelson, macro strategist at Wells Fargo (NYSE:WFC).

“Whereas there’s a whole lot of issues, significantly geopolitical, that might push euro under parity subsequent 12 months, positioning presently is already slightly excessive.” 

The remaining 18 mentioned the possibility of parity by end-February was ‘excessive’ or ‘very excessive’.

In a separate current Reuters survey of economists who cowl the euro zone and ECB coverage, practically 90%, 34 of 39, mentioned President-elect Donald Trump’s proposed tariffs would considerably have an effect on the euro zone economic system in coming years.

“If Trump was to threaten to place in place greater tariffs in opposition to the EU at first of subsequent 12 months or if the ECB steps up the tempo of price cuts – maybe a bigger 50 foundation level minimize in some unspecified time in the future over the subsequent three months – that might drag euro-dollar down in the direction of and probably under parity,” mentioned Lee Hardman, senior foreign money analyst at MUFG.

A near-90% majority, 38 of 43 responding to a further query mentioned the U.S. greenback was extra prone to commerce stronger than they predicted within the coming three months than undercut these forecasts.

(Different tales from the December Reuters overseas change ballot)