Title: Amundi Predicts Euro-Dollar Climb by 2026 but Sees Key Resistance Below 1.25
By James Skinner, originally published on PoundSterlingLive.com
Amundi, Europe’s largest asset management firm, has released a cautiously optimistic forecast for the euro-to-U.S. dollar (EUR/USD) exchange rate over the coming years. The organization anticipates that the euro will begin to appreciate steadily against the dollar heading into 2025 and 2026. However, Amundi’s analysts also suggest the upside will be capped, with significant resistance preventing the exchange rate from breaching the 1.25 level sustainably.
In a recent mid-year outlook report, Amundi detailed its view that the euro has modest appreciation potential but is unlikely to stage a spectacular rally. Instead of soaring to extreme highs, the euro is more likely to appreciate gradually amid an expected shift in macroeconomic conditions. The firm believes several long-term policy and structural factors will play a key role in shaping the trajectory of the EUR/USD pair over the next few years.
Key Highlights from Amundi’s Outlook:
– Amundi projects moderate euro appreciation by 2026.
– The EUR/USD exchange rate is forecast to remain below the 1.25 threshold.
– Interest rate convergence between the European Central Bank (ECB) and the Federal Reserve (Fed) could support the euro.
– The firm sees a gradual economic rebound in the Eurozone.
– Geopolitical risks, energy supply issues, and political uncertainty are expected to cap the euro’s strength.
Long-Term Forecast Anchored in Macro and Policy Dynamics
Amundi’s analysts argue that while the euro has the potential to strengthen, its gains are expected to be constrained by the monetary and economic policy framework in both the Eurozone and the United States. Much of their forecast hinges on anticipated interest rate normalization, which could see the ECB gradually closing the gap with the Federal Reserve.
In recent years, the ECB has maintained significantly lower interest rates compared to the Fed, giving the dollar an edge. However, as inflation cools globally and central banks pivot from restrictive policy to more neutral stances, Amundi sees opportunities for the euro to gain some ground.
“Our macroeconomic baseline points to 2026 as a turning point, with macro and policy normalization supporting a mild appreciation of the euro,” said the research team.
As monetary policy tightness peaks and then recedes in the coming quarters, the divergence in central bank policy that has long supported the dollar may begin to fade. If the ECB initiates a series of rate hikes or the Fed reduces its policy rate faster than currently expected, the resulting convergence could favor euro appreciation.
Factors Supporting the Euro Outlook:
– Gradual interest rate parity between the Fed and ECB.
– Softer U.S. economic momentum anticipated after peak-dollar cycle.
– Gains in Eurozone productivity and sustainable fiscal reforms.
– Increasing global allocation toward euro-denominated assets.
However, Amundi does not predict a runaway rally. Structural weaknesses in the Eurozone economy, along with global risk factors, continue to pose headwinds for the currency and contribute to their decision to cap the potential rally below 1.25.
Key Constraints on EUR/USD Strength:
– Persistent political uncertainty in key EU countries.
– Ongoing energy transition issues and reliance on external supply.
– Limited progress on deeper fiscal integration within the EU.
– Geopolitical developments, including tensions in Eastern Europe and trade disputes.
Euro’s Value Now Seen As Reasonable
Another notable point from Amundi’s report is their assessment that the euro is no longer undervalued from a fundamental standpoint. In previous years, the EUR/USD pair fell to multi-decade lows, driven by economic divergence and contrasting policy trajectories between the U.S. and Eurozone. But Amundi believes the currency pair has now realigned with medium-term fair value based on purchasing power parity and relative economic performance.
As of mid-2024, the EUR/USD is trading near 1.08 to
Read more on EUR/USD trading.