Title: Euro to US Dollar Forecast: Rabobank Warns of Possible Delays Reaching 1.20 by Late 2025
Source: Original article by James Fuller, ExchangeRates.org.uk
The euro (EUR) to US dollar (USD) exchange rate has faced considerable volatility over the past year. Economic data, fluctuating interest rate expectations, and geopolitical tensions have made it increasingly difficult for investors to settle on a clear trajectory for EUR/USD. Rabobank, a prominent Dutch financial services firm, recently updated its forecast, suggesting potential delays to its previously projected target of 1.20 for the euro against the dollar by late 2025.
Here we explore the details of Rabobank’s revised projections, the macroeconomic factors at play, and what traders and investors might expect in the coming months.
Key Highlights from Rabobank’s EUR/USD Forecast
– Rabobank maintains a long-term EUR/USD target of 1.20 but admits that the timeline may be extended due to recent economic developments.
– Divergence in economic growth between the Eurozone and the United States is a major factor influencing the outlook.
– Interest rate trajectories from the European Central Bank (ECB) and the Federal Reserve (Fed) are also creating disparities.
– Political uncertainties in both Europe and the US could interfere with currency markets, leading to delays or deviations from the expected exchange rate path.
– Short-term downward pressures may persist if Eurozone data continues to underwhelm and if the Fed maintains hawkish tones.
Long-Term Outlook: EUR/USD to Reach 1.20 by Late 2025
Rabobank reiterated its view that the euro could appreciate to 1.20 against the dollar in the long run but cautions that the timeline is vulnerable to setbacks.
– Initial projections had anticipated a steady appreciation of the euro.
– Current economic trends suggest that this appreciation might not occur until late 2025 or even beyond.
– The firm emphasizes the role of monetary policy convergence between the ECB and the Fed in achieving this target.
The reasoning behind the long-term bullish outlook is primarily rooted in the view that the US dollar is overvalued in the context of purchasing power parity (PPP). Based on historical models and long-term trend analysis, the euro has room to appreciate if the impacts of geopolitical shocks smooth out and growth within the Eurozone picks up.
Macro Headwinds for EUR/USD in the Near Term
1. Diverging Macro Data Between Europe and the US
One of the most influential elements in Rabobank’s revision is the disparity between the economic performance of the United States and that of the Eurozone.
– US GDP remains comparatively resilient, supported by strong consumer spending, low unemployment, and robust investment activity.
– In contrast, Eurozone economies such as Germany and France continue to face sluggish growth, high energy prices, and industrial challenges.
– This divergence reduces investor appetite for the euro and enhances the dollar’s safe-haven appeal during global uncertainty.
2. Central Bank Divergence: ECB vs Fed
Another significant factor is the divergence in monetary policy approaches between the ECB and the Fed.
– The Federal Reserve has maintained a higher interest rate regime amidst persistent inflationary pressures, although it is currently signaling a pause in further hikes.
– The ECB, while also combatting inflation, has been more cautious in raising rates, especially given the weaker growth backdrop in the Eurozone.
– Markets continue to price in a higher-for-longer stance for the Fed, which boosts capital inflows into USD-denominated assets and drags on EUR/USD.
– Rabobank’s strategists believe the ECB might begin rate cuts earlier than the Fed, which could reinforce euro weakness in the short to medium term.
3. Geopolitical and Political Risks
– Tensions in Eastern Europe and continued instability surrounding the war in Ukraine weigh on investor sentiment toward the euro.
– Upcoming elections in various European Union countries, including issues around fiscal policies and governance, add layers of uncertainty.
– In the United States, the forthcoming Presidential
Read more on EUR/USD trading.