Title: ING Forecasts Euro to Dollar Exchange Rate at 1.18 by End of 2025
Source: Article originally written by James Matheson for ExchangeRates.org.uk
As global financial markets continue to navigate uncertain terrain heading into 2025, ING has reaffirmed its bullish stance on the euro’s performance against the US dollar. The multinational banking and financial services giant continues to anticipate a recovery in the EUR/USD exchange rate, projecting a target of 1.18 by the end of next year.
In its latest foreign exchange outlook, the bank identifies several macroeconomic components driving its euro-dollar projection, primarily related to monetary policy divergence between the United States and the Eurozone, the expected path of inflation, interest rate decisions from central banks, and shifting risk sentiment around the globe.
This analysis dives deeper into ING’s reasons behind their bullish euro forecast and evaluates the critical economic indicators that may influence the future path of the EUR/USD currency pair.
Key Highlights of ING’s Euro Forecast:
– ING’s target for EUR/USD remains at 1.18 by the end of 2025.
– Anticipation of a looser monetary policy stance from the US Federal Reserve.
– Expectations of Eurozone rate stabilization or only modest cuts.
– Easing inflationary pressures in both the Euro area and the US.
– Rebalancing of capital flows toward Europe.
– Recovery in global risk appetite supporting European assets.
Monetary Policy Divergences: Core Catalyst for EUR/USD Movement
One of the primary drivers behind ING’s outlook on EUR/USD is the divergence in monetary policy between the US Federal Reserve and the European Central Bank (ECB). According to ING, while both central banks have adopted restrictive policy rates to combat inflation over recent years, the economic outcomes in the two regions are beginning to diverge.
Federal Reserve Outlook: Heading Toward Rate Cuts
– ING expects the Federal Reserve to begin a gradual interest rate cutting cycle in 2025, driven by signs of a cooling labor market and diminishing inflationary pressure.
– The US central bank had hiked rates aggressively through 2022 and 2023, but current data suggest weakening economic momentum.
– Slowing consumer demand and softening housing data indicate that tighter monetary conditions are starting to bite.
– If the Fed starts cutting rates before the ECB, the resultant capital outflows could weigh on the dollar, providing upward momentum for EUR/USD.
ECB Stance: Stability in European Rate Policy
– ING foresees a more cautious easing path from the ECB. Following multiple rate hikes between 2022 and 2023, the ECB now faces a fragmented economic outlook.
– Countries such as Germany continue to show industrial weakness, while southern European countries exhibit more resilience.
– Goldman Sachs and other financial institutions have also forecast a more moderate ECB easing schedule compared to the US.
– Higher-for-longer expectations in the Eurozone should help maintain support for the euro relative to the dollar.
Inflation Outlook: Converging Downward Pressures
Both the US and Eurozone have battled headline inflation rates well above target in prior years. However, recent data points suggest a trend toward normalization.
– ING believes Europe’s inflation trajectory is beginning to align with the ECB’s 2 percent target.
– Wages continue to show controlled growth in most Eurozone economies, limiting second-round inflation pressures.
– In the US, the core Personal Consumption Expenditures (PCE) index has flattened, suggesting that the aggressive Fed tightening has had its intended disinflationary effects.
– As inflation cools in both regions, the monetary policy focus will shift from inflation-fighting to economic stabilization, providing an opportunity for EUR/USD recalibration.
Capital Flows and Investment Sentiment
Another core component of ING’s EUR/USD forecast involves capital reallocations across global financial centers.
– With US bond yields declining as rate cut expectations cement, the relative attractiveness of US assets fades.
– European equities are gaining interest among institutional investors due to undervaluation relative
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