**Title: European Banks: FX Views Remain Constructive, Near-Term Caution on EUR/USD and GBP/USD**
*By eFXdata, article summary and expansion based on the original analysis*
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### Introduction
In the constantly evolving world of foreign exchange (FX) markets, European banks maintain a fundamentally constructive view on the major currency pairs, notably EUR/USD and GBP/USD. While medium to long-term trends lean positively, near-term caution remains due to a variety of economic, political, and market-driven factors. The landscape is shaped by a complex interplay between monetary policy divergence, geopolitical uncertainty, inflation dynamics, and shifting capital flows, making the outlook subject to considerable nuance. This article draws on insights originally published by eFXdata to provide a detailed exploration of current European bank perspectives, key drivers behind their cautious stance, and potential implications for traders and investors.
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### 1. **Medium to Long-Term Constructive Views**
European banks, reflecting the consensus across several research desks, retain a constructive outlook on both EUR/USD and GBP/USD for the remainder of the year and into 2025. The expectation is underpinned by several key factors:
– **Economic Recovery in Europe:** As the Eurozone and the UK move past the worst of post-pandemic disruptions, economic activity is expected to recover gradually, with the services and manufacturing sectors showing signs of stabilization despite notable headwinds.
– **Monetary Policy Convergence:** Both the European Central Bank (ECB) and the Bank of England (BoE) are likely to ease policy at a measured pace, narrowing the divergence in rate differentials that has favored the US dollar in recent years.
– **Structural Adjustments:** Receding energy concerns and normalization in trade flows further bolster expectations for European currencies, assuming geopolitical risks do not escalate substantially.
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### 2. **Short-Term Caution Persists**
Despite their constructive medium-term stance, European banks advise a cautious approach over the remainder of Q2 and into Q3. Several overlapping factors feed into this near-term uncertainty:
– **Sluggish Domestic Data in the Eurozone and UK:** Recent economic releases from Europe and the UK highlight underlying vulnerabilities, including soft retail sales, consumer confidence, and manufacturing weakness. These reinforce a cautious tone and a defensive stance for the euro and pound in the near term.
– **Uncertainty Surrounding the Timing of Rate Cuts:** Although markets have priced in rate cuts for both the ECB and BoE, the pace and timing remain uncertain. Any change in guidance from central banks could trigger sharp volatility.
– **US Dollar Strength:** Positive US economic data and a resilient labor market continue to support the greenback, limiting upside for EUR/USD and GBP/USD in the short term.
– **Geopolitical Risks:** Ongoing tensions regarding global trade, Russia’s actions in Ukraine, and political uncertainty ahead of major elections could drive safe-haven flows into the US dollar, capping gains for European currencies.
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### 3. **Detailed Analysis: EUR/USD Outlook**
#### **Medium-Term Factors Supporting EUR/USD**
– **ECB Policy Shift:** After aggressive tightening in 2022 and 2023, the ECB is expected to shift towards rate cuts at a gradual pace. This easing is likely to help stimulate economic growth and support the euro in the second half of 2024.
– **Energy Resilience:** Reduced gas price volatility and increased energy diversification have lessened Europe’s vulnerability to energy shocks, a key drag on the euro last year.
– **Global Growth Synchronization:** As global growth recovers further, cyclical support for the euro increases, especially as trade flows normalize post-pandemic.
#### **Short-Term Caution**
– **Weak European Data:** Persistent weakness in the manufacturing sector and patchy service sector growth keep investors wary of near-term euro appreciation.
– **US Relative Outperformance:** Stronger US growth and delayed expectations for Federal Reserve rate cuts have preserved the dollar’s appeal, tempering EUR/USD upside.
#### **Technical
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