Title: Euro to Dollar Forecast: Credit Agricole Expects Gradual EUR/USD Decline Toward 1.14 by 2026
Original Article by Tim Clayton | Source: ExchangeRates.org.uk
As foreign exchange markets look ahead to long-term economic shifts, Credit Agricole analysts have provided a measured outlook for the euro to US dollar (EUR/USD) exchange rate. The Eurozone’s persistent economic struggles combined with a steady U.S. performance underpin the bank’s forecast of a gradual EUR/USD depreciation toward 1.14 by the end of 2026. This article provides a comprehensive overview of Credit Agricole’s assessment and forecast, exploring both macroeconomic fundamentals and policy expectations across the Eurozone and the United States.
Key Takeaways:
– Credit Agricole projects EUR/USD falling safely to 1.14 by the end of 2026
– The forecast reflects structural weakness in the Eurozone economy
– Divergence in monetary policy expectations remains a key driver
– US dollar continues to benefit from safe-haven demand
– Timing of rate cuts by the European Central Bank (ECB) and Federal Reserve is pivotal
– Euro depreciation will likely play out in gradual stages rather than through any sudden slump
Monetary Policy Outlook: ECB Pivots Amid Weak EU Growth
The European Central Bank’s policy trajectory is expected to remain notably dovish as Eurozone growth continues to stagnate. According to Credit Agricole, the foundation of the EUR/USD forecast is built upon:
– A slower-than-expected economic recovery in the Eurozone, driven by structural headwinds including weak productivity growth, demographic pressures, and subdued investment.
– Downside risks to inflation that discourage the ECB from aggressive tightening, even amid rising global prices.
– Continued dovish sentiment from the ECB, with an inclination to cut rates before the Federal Reserve does, sustaining selling pressure on the euro.
Credit Agricole believes that the ECB will pursue monetary easing more decisively than the Federal Reserve, particularly in response to the lagging performance of Eurozone economies like Germany and Italy. The central bank’s willingness to combat stagnation with lower interest rates will likely weigh on the common currency throughout 2025 and into 2026.
Federal Reserve Policies Support US Dollar
Contrasting with the dovish outlook for the ECB, Credit Agricole sees the Federal Reserve maintaining a more neutral or even marginally hawkish stance in the medium term. Highlights include:
– The US economy continues to show resilience, underpinned by strong consumer demand, corporate investment, and less dependence on international trade.
– Inflation pressures remain more persistent in the US than in Europe, discouraging the Fed from any immediate move toward aggressive monetary loosening.
– The Federal Reserve’s transparency and credibility in managing rate hikes and cuts have contributed to increased appeal for dollar-denominated assets.
In essence, differences in growth and inflation fundamentals mean that even if both central banks cut rates in the future, the Fed could retain a relative advantage, making dollar assets more attractive than euro ones.
Safe-Haven Appeal and Capital Flows Remain Dollar-Positive
Credit Agricole also emphasizes the US dollar’s status as a safe-haven asset, particularly in periods of global uncertainty. Key factors supporting the greenback include:
– Ongoing geopolitical tensions, including trade disputes and ongoing conflicts, continue to drive investors into the perceived safety of the US dollar.
– The dollar serves as the world’s primary reserve currency, reinforcing strong capital inflows even during market turbulence.
– The relative strength and liquidity of the US Treasury market enhance investor confidence and attract global investment.
As long as macro and geopolitical headwinds persist, pressures favoring dollar strength are expected to continue, gradually pulling EUR/USD lower.
Structural Weakness in the Eurozone
Beyond immediate policy divergences, Credit Agricole identifies deeper structural issues within the Eurozone that will likely weigh on the euro. They highlight concerns such as:
– Demographic challenges, including aging populations and declining labor force participation rates
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