**EUR/USD Forecast Revised Higher as Analysts Eye 1.18 Target**
*Original Reporting by James Skinner, PoundSterlingLive*
The euro is gaining strength against the US dollar as analysts project an increasingly bullish trajectory for the EUR/USD pair. A new target of 1.18 is now being forecast by several financial institutions, suggesting a meaningful shift in sentiment fueled by recent data and central bank guidance. Market expectations are gradually aligning with the idea that the era of US dollar dominance may be easing, while the euro stands to benefit from a more stable economic outlook in the Eurozone.
In this article, we explore the reasons behind the revised forecast, recent EUR/USD performance, key macroeconomic factors driving sentiment, and how central bank policy stances are influencing the pair’s outlook. We also evaluate the long-term projections and what forex traders and investors should watch for in the months ahead.
## Recent EUR/USD Movement Suggests Momentum Shift
Recent trading sessions have seen the EUR/USD pair recover modestly from the lows reached earlier in 2024. The broader uptrend, although in its infancy, is giving analysts enough confidence to suggest that 1.18 is an attainable target by year-end or early 2025.
– EUR/USD traded around the 1.07–1.08 level in June 2024.
– The pair had previously struggled to sustain rallies, mainly due to a consistently hawkish Federal Reserve.
– Over the past month, momentum has shifted as the Federal Reserve appears more willing to pause or even consider rate cuts, while the European Central Bank (ECB) appears comfortable with stable policy for now.
James Skinner of PoundSterlingLive reports that the upward revision to EUR/USD forecasts is a reflection not only of economic data but also of sentiment shifts among major institutional players. According to Skinner, evolving expectations surrounding interest rate differentials are playing a pivotal role in the euro’s renewed strength.
## RBC Capital Markets Predicts a Climb to 1.18
One of the most notable forecast revisions comes from RBC Capital Markets. Analysts at the firm now believe EUR/USD could rise to 1.18, a significant upward revision from previous expectations.
Key takeaways from RBC’s analysis include:
– Their previous forecast had EUR/USD ending 2024 near 1.12.
– A combination of US dollar weakness and improved euro area data led to a target revision.
– RBC argues that diminishing US yield advantages will remove a significant pillar of USD support.
– The divergence in growth prospects and inflation expectations is viewed as less extreme compared to six months ago.
This marks a substantial shift in institutional consensus, as the euro had earlier been weighed down by lagging Eurozone growth and geopolitical uncertainty.
## Factors Driving the Bullish Euro Outlook
Several macroeconomic and market dynamics are contributing to the brighter forecast for EUR/USD.
### 1. Federal Reserve Policy Shift
The Federal Reserve, once steadfast in its higher-for-longer interest rate stance, has started to signal increased openness to rate cuts should economic conditions soften. Markets are interpreting more dovish tones from recent Fed communications as a sign the USD could weaken.
– While core inflation in the US remains sticky, headline CPI has cooled.
– Labor market indicators are showing early signs of loosening, reducing the need for sustained Fed tightness.
– Futures markets are now pricing in the possibility of at least one rate cut by the end of 2024.
A lower Fed interest rate outlook reduces the yield premium on USD-denominated assets, weakening demand for the dollar and lifting EUR/USD in return.
### 2. Stabilizing Eurozone Economy
Economic indicators in the Eurozone also appear to be stabilizing, though at a notably slower pace than the US. Still, the improvement is sufficient to reduce fears of a deep or prolonged recession.
– Germany’s manufacturing sector has shown early signs of bottoming out.
– Consumer sentiment surveys across France, Spain, and Italy have improved marginally.
– Inflation in the Euro
Read more on EUR/USD trading.