Title: Steady Euro Forecast Through 2026, Says Bank of America Survey
Original Author: Justin Low via ForexLive on TradingView News
Investors are anticipating a stable euro-dollar (EUR/USD) exchange rate through 2026, according to a recently conducted survey by Bank of America Global Research. Despite economic uncertainties and monetary policy shifts on both sides of the Atlantic, the consensus among institutional investors appears to be a long-term baseline of relative stability for the euro.
This outlook is drawn from Bank of America’s latest Fund Manager Survey, which highlights that the majority of participants foresee the EUR/USD pair maintaining a consistent trading pattern through to 2026. While nuances exist among short-term and long-term expectations, broad anticipation of steadiness underscores investor sentiment regarding inflation, interest rate trajectories, and macroeconomic trends in both the eurozone and the United States.
Below is a comprehensive breakdown of the survey results, potential reasons behind the expectations, and broader implications for the forex markets.
Key Findings of the Bank of America Survey
According to the survey data:
– The majority of fund managers expect the euro-dollar exchange rate to stay near its current level through 2026.
– Only a small portion of participants predict a materially weaker euro over this period.
– Many investors foresee a narrow trading band for EUR/USD, ranging between 1.05 and 1.15 during the forecast period.
– There are subdued expectations for a significant euro rally, implying limited upside momentum from baseline levels.
– U.S. exceptionalism — the economic outperformance of the U.S. compared to Europe — is cited as a key supportive factor for the dollar.
– Conversely, the end of the Federal Reserve’s interest rate hike cycle could gradually reduce the dollar’s strength over time.
Analyzing the Forecast: Why Stability is Expected
Several interlocking factors are contributing to the perception of a steady euro-dollar exchange rate over the medium to long term. These include:
Macroeconomic Fundamentals
– Economic growth in both the eurozone and the U.S. is expected to moderate, limiting large moves in currency valuations.
– While the U.S. economy continues to show stronger expansion relative to Europe, there are growing concerns about a potential slowdown.
– The eurozone, meanwhile, is facing stagnant growth rates, elevated inflation, and political uncertainty in key member states.
– Core inflation remains relatively sticky in both economies, reducing the scope for dramatic divergence in monetary policy.
Interest Rate Expectations
– Markets have largely priced in the end of the Federal Reserve’s rate-hiking cycle.
– The European Central Bank (ECB), on the other hand, is expected to maintain a cautious stance on further hikes.
– The narrowing policy differential between the Fed and ECB is seen as a stabilizing factor for the EUR/USD exchange rate.
– Real interest rate convergence, particularly as inflation expectations moderate, leads to more balanced capital flows.
Geopolitical and Structural Considerations
– Heightened geopolitical tensions, such as the war in Ukraine and ongoing U.S.-China rivalry, have increased demand for safe-haven assets, with the dollar retaining some advantage.
– At the same time, the euro benefits from international reserve diversification trends, particularly among emerging market central banks.
– Structural reforms and fiscal integration efforts in the eurozone, though slow, provide some support to long-term euro stability.
Investor Positioning and Sentiment
– According to Bank of America’s data, large institutional investors and fund managers have largely neutral positioning on the euro.
– This neutrality signifies a lack of conviction in either strong upside or downside moves for the pair.
– Currency volatility remains historically low, reinforcing the perception of range-bound trading.
U.S. Exceptionalism and Its Limits
While the concept of U.S. exceptionalism continues to underpin some of the dollar’s structural strength, signs of moderation are emerging.
– The U.S. has outperformed the eurozone in recent years in terms of output growth, employment gains, and corporate earnings.
– However, market participants are increasingly skeptical
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