EUR/USD Forecast 2016
Here we will show the latest EUR/USD forecasts from major banks fx-analysts.
You have to remember that no one really knows the future, therefore the best way to look at those forecasts is as a sign to what the market wants to see. Euro to Dollar forecast list:
- Lloyds Bank’s Forecast – EUR/USD at 1.02 by March 2016. (“a move below parity cannot be ruled out”)
- Deutsche Bank Forecast – EURUSD at 0.85 by 2017. (“We re-iterate our forecast for continued EUR USD weakness over the course of this decade, with a move below parity in 2016 and a terminal forecast of 85cents by 2017”)
- UBS – Euro Vs. Dollar forecast at 1.05 in three months, 1.08 in six months.
- BNP Paribas – “We maintain our yearend Euro to Dollar target at 1.06, and see the pair reaching 1.04 more gradually in Q1 of next year, en route to parity by Q3.”
- Morgan Stanley – EUR USD forecast at 1.03 in Q1 2016.
- SocGen – Forecast Euro to Dollar parity in the next coming months. Read…
- Danske Bank – EUR/USD at 1.16 in 12 months. Read...
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EUR USD overview
Since its introduction in 1999. Euro swiftly became one of the major currencies traded on Forex markets. It is not only the second most traded currency, immediately after US Dollar, but Euro is also significant reserve currency in the world. This can be seen as great success considering one particularity of Euro in relation to all other world currencies: Euro is currency accepted by 22 countries members of the European Union. Its first entrance on the market Euro had at level of 1.1795 against US Dollar, and since then it has been free floating from levels of 0.8 against Dollar during Y2002 till 1.6 which is highest level reached in the dawn of latest world financial crisis.
Global financial crisis, triggered by collapse of Lehman Brothers, had its extreme negative effects on equities and banking market, but it was very beneficial for US Dollar. All time lowest level against Euro of 1.6, Dollar reached during first quarter of Y2008. After that period trend has been reversed and Dollar finished same year at level of 1.25. Dollar recovery was actually supported by investors risk aversion expecting significant spillover effect on other world economies, which pushed European currency to the levels of 1.25. Eventually, impact on developed world economies has been so huge that since then, it could be seen almost coordinated rate cuts by central banks of world leading countries.
Crisis spillover effect in European Union has been most evident through Greek crisis over sovereign debt, lasting up to present days. Soon after Greece, some other European countries faced almost same problem including Spain, Portugal, Italy, Ireland and later Cyprus. Concerns over significant sovereign crisis during June 2010 and potential default of Greece pushed Euro down to 1.18, from previous highs of 1.5 against Dollar.
Days of slow recovery
Global financial crisis which started during 2008 has its repercussion effect until present days. Both Europe and US economies are struggling with internal and spillover effects of world recession. However, since the end of Y2014 significant strengthening trend of US Dollar is evident against Euro, supported by positive fundamentals, indicating that modest recovery of US economy is on the track. During April 2014 currency pair reached level of 1.48, and from that time modest but continuous strengthening of US Dollar is evident up to present days.
Interest rates in Europe are continuously dropping since year 2008., reaching levels from 4.75 in 2008 down to 0.00% during year end 2014. Latest ECB decision, as of March 2016. has been to decrease its deposit facility rate to -0.4%. This was also first time when EU interest rates reached negative area as part of ECB quantitative easing. Almost the same course of action has been seen by FED, where US Fed Funds rate has been decreased during years from 5.25% before recession to the level of 0.25% lately. Latest change in this rate has been made during December last year when Fed Funds rate has been increased to 0.5%. This was important moment considering that FED has finally changed its course from quantitative easing to discussions on course of increasing interest rates.
Fundamentals are showing that US economy is back on the track with GDP growth of 1.4% as of the end of Y2015 and very modest inflation of around 1%. However, creating new jobs was one of the major targets of FEDs policy during previous period, and this goal is almost accomplished as per FED`s official. At the same time, unemployment within Euro area is still standing at relatively high level of around 10%, while growth rate is at quite low level, reaching very modest 0.3% as of the end of last year. European Union monetary policy is heavily leaned on continuous quantitative easing aimed to cope with deflating trend. Two major instruments on which ECB is leaning its policy are further decrease in interest rates while on the other side there are extensive government bond purchases programs which is a way of pumping Euros into economy. Both measures up to current days did not give significant results, pushing Euro the level of 1.05 against Dollar as of the last quarter of 2015.
What is still very fragile in US economy is trade deficit that is set on up trend since the beginning of financial crisis. However, markets are currently much more concerned regarding next FED`s rate increase during this year, however, FED is taking cautions approach to further rate hike in fear of spillover effect of world recession on US economy, making markets currently quite volatile.
Looking forward to where the currencies might be in the future we can only rely on estimations and historical moves in currency pair. It’s not an easy job to forecast the EUR/USD. Historical lows of Euro against Dollar has been reached during Y2002. at level of 0.8. Historically highest level Euro reached during Y2008 at level of 1.6 against USD. Currently currency pair is somewhere in the range of 1.10-1.15 , which is level relatively close to historical minimum.
Having a view from current perspective, fundamentals are not on the side of Euro, considering that ECB quantitative easing did not provide expected results until now. New actions from ECB are expected in the near future and in case that it manage to set inflation on up course, we might see strengthening of Euro currency against US dollar and other currencies. In this scenario Euro might reach levels of 1.2 or 1.3 during next year. However, any measure imposed by central bankers need some time to reveal results and in this sense, further strengthening of US currency might be much more realistic course of movement on FX market. Current positive impulse of US economy developments would support US currency, and adding to it decrease in prices of oil and gold, gives additional support for further dollar growth. In this sense it could be quite possible to see Euro vs Dollar reaching 1.10-1.08 as of the year end. Looking further to the next years, we forecast the Euro to Dollar rate further declining to the levels of 1 – 0.8, reaching historical maximum Dollar vs. Euro.