**Long-Term Euro to Dollar Forecast: Berenberg Predicts EUR/USD Upside Despite Near-Term Challenges**
*Original reporting by James Clark for ExchangeRates.org.uk*
Berenberg Bank, one of Germany’s oldest and most respected financial institutions, has released a comprehensive long-term forecast for the EUR/USD currency pair, suggesting that although the euro faces several short-term obstacles, the medium-to-long-term outlook is optimistic.
According to Berenberg’s latest commentary published on ExchangeRates.org.uk, the euro is expected to gradually strengthen against the US dollar through to the end of 2025 and beyond. The bank sees macroeconomic adjustments, inflation normalization, interest rate realignments, and geopolitical stabilization as key drivers that will support a resurgence in the euro’s value over time.
Below is a breakdown of Berenberg’s latest perspective, exploring the key factors influencing the EUR/USD outlook and how traders and investors might interpret the implications for currency markets going forward.
**Current EUR/USD Position and Short-Term Pressures**
As of late November 2024, the EUR/USD has been trading below the 1.10 level due to a combination of factors that favor the dollar. Though the pair had experienced a moderate recovery from its lows earlier in the year, it remains constrained by macroeconomic uncertainty in the eurozone coupled with persistent US dollar strength.
Major short-term challenges include:
– Continued economic weakness in the euro area, with declining industrial production and slower consumer spending
– A relatively more robust performance from the US economy, supported by consumer demand and service-sector strength
– The Federal Reserve’s currently higher interest rate posture compared to the European Central Bank
– Lingering geopolitical risk in the EU’s eastern flank and in the Middle East
Berenberg acknowledges that these factors are weighing heavily on the euro’s progress for now. However, the bank argues this is part of a temporary dislocation in fundamentals, not a permanent shift in trajectory.
**Medium-Term Recovery in Euro Fundamentals**
The bank’s forecast rests on the view that the fundamental drivers of euro strength are expected to recover in the coming quarters. Berenberg anticipates an easing of inflationary pressures across the euro area, combined with a gradual recovery in economic activity, which will support a shift in European Central Bank (ECB) policy over time.
Anticipated medium-term developments include:
– Inflation rates in both the eurozone and the US will normalize at moderate rates, reducing the divergence between central bank policies
– The ECB may begin taking less dovish stances in late 2024 into 2025 as inflation data supports policy normalization
– Fiscal support measures within the EU could stimulate domestic demand and boost overall GDP growth
– Any signs of resilience in European labor markets could help stabilize the consumer sector and fortify the recovery
Berenberg also points out that the trade balance dynamics between the EU and external markets, particularly China and the United States, may become more favorable for the euro as global supply chains stabilize and energy prices continue to moderate.
**Interest Rate Expectations and Long-Term Currency Alignment**
One of the primary forces driving FX valuation over time is monetary policy divergence, specifically relative interest rate differentials. Berenberg expects convergence between interest rates in the US and eurozone by 2025, following a period of elevated rates stateside.
Their long-term scenario includes:
– A probable Fed rate cut cycle starting by mid-2025 if inflation continues to beat expectations on the downside
– A more stable ECB policy path that refrains from further cuts while avoiding premature tightening
– Flattening of yield differentials as both central banks seek to achieve soft landings in their respective economies
– Reinforced investor appetite for euro assets as bond yields in core EU economies stabilize and become more attractive, particularly in Germany and France
This implies that capital flows could begin tilting in favor of the euro in H2 2025 as the era of dollar outperformance reverses.
**Global Macroeconomic Context and Cross-Currency Inter
Read more on EUR/USD trading.