Goldman Sachs Forecasts Euro to US Dollar Exchange Rate Reaching 1.25 Within 12 Months
By James Addison
Original article sourced from ExchangeRates.org.uk
Goldman Sachs has issued a bullish outlook for the Euro to US Dollar (EUR/USD) exchange rate, predicting it will reach 1.25 within the next 12 months. This projection, an upgrade from previous forecasts, signifies rising confidence in the Eurozone’s economic recovery and expectations of diverging monetary policy paths between the European Central Bank (ECB) and the US Federal Reserve. The new 12-month target suggests a substantial appreciation from current levels and highlights how shifting economic indicators and central bank policy stances are reshaping sentiment in currency markets.
In its latest analysis, Goldman Sachs notes that the forces supporting the Euro are gaining momentum as inflation moderates in the US, and European fundamentals show tentative signs of revival. This divergence is anticipated to drive the EUR/USD pair significantly higher over the coming year.
Key Drivers Behind the EUR/USD Forecast
Goldman Sachs’ forecast hinges on several crucial factors that, collectively, favor the Euro against the US Dollar. These include:
– Easing Inflation in the United States
The bank anticipates that inflation in the US will slow to a point where the Federal Reserve feels comfortable cutting interest rates. Lower interest rates generally weaken a currency’s yield advantage, thereby reducing demand from international investors. As a result, the US Dollar, which has benefited greatly from the Fed’s aggressive hiking cycle, could lose its appeal.
– European Central Bank’s Policy Outlook
While the ECB has also taken aggressive actions to manage inflation, it is projected to hold rates steady longer than the Fed. Goldman Sachs expects the relative outperformance in ECB policy to support the Euro. With the Eurozone economy showing early signs of stabilization, the ECB may not need to cut rates as rapidly as the Fed.
– Current Account Surplus in the Euro Area
The Eurozone continues to maintain a healthy current account surplus, particularly driven by strong export performance. This underscores the resilience of European economies such as Germany and the Netherlands. The surplus creates a natural demand for the Euro in international transactions, which in turn supports the currency’s valuation.
– Decline in US Economic Exceptionalism
The US economy, which has outperformed its global peers in recent years, is expected to show slower growth moving forward. Goldman Sachs points to signs of labor market normalization and cooling inflation as evidence that the intense pace of US expansion may have peaked. As the “US exceptionalism” narrative fades, it could reduce upward pressure on the Dollar.
Market Sentiment Turning in Favor of the Euro
Goldman Sachs’ optimism is echoed by broader market movements that indicate improving sentiment toward the Euro. Investor positioning and fund flows suggest a gradual shift back into Euro-denominated assets. The fading US inflation story and potential shifts in real interest rates are prompting reconfigurations in currency portfolios.
– Net positioning data from the Commodity Futures Trading Commission (CFTC) shows that traders have moved from extreme long USD positions toward more balanced stances.
– European equities have experienced increased inflows as optimism about economic stabilization grows.
– Risk appetite across global markets appears to be improving, supporting the relative attractiveness of the Euro in a multi-currency framework.
Goldman Sachs’ Revised EUR/USD Forecast Table
The updated forecast represents a notable adjustment to Goldman Sachs’ previous EUR/USD trajectory. In line with shifting macroeconomic fundamentals, the institution has recalibrated its short, medium, and long-term expectations.
| Time Horizon | Previous Forecast | New Forecast |
|————–|——————-|————–|
| 3 months | 1.10 | 1.15 |
| 6 months | 1.15 | 1.20 |
| 12 months | 1.20 | 1.25 |
This revised path signals confidence in upward momentum for the Euro, albeit in a
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