Euro corrects to below 1.09 vs. dollar after November gains

Euro corrects against dollar after posting gains in late November

The euro to dollar rate fell below $1.092 on Friday amid growing expectations that major central banks will transition from tightening policies to implementing rate cuts in the coming year.

Flash consumer price inflation (CPI) data revealed a more significant-than-expected slowdown in inflation across the euro area, including Germany, Italy, and Spain. The Eurozone's core inflation rate gauge also dropped to 3.6%, hitting its lowest level since April 2022 and falling below the projected 3.9%.

The euro to dollar rate has also been impacted by members of the U.S. Federal Reserve appearing to step away from their previously hawkish stance. The DXY dollar index, a gauge of the U.S. currency’s strength against six major counterparts, has declined to trade around the 103 mark, while the euro has recorded a gain of more than 3% in November, marking its most substantial monthly increase since November 2022.

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Euro forecast: Strength of rebound may be limited, analysts say

Shaun Osborne, Scotiabank’s Chief FX Strategist, wrote that corrective losses towards the 1.09 area could potentially extend in the short run. His most recent euro forecast identified the EUR/USD support level around 1.0880:

“Final Eurozone Manufacturing PMI data was revised up slightly to 44.2, from the preliminary November reading of 43.8. German and French data were revised up while Spain reported a stronger-than-expected 46.3 for the month. Italy’s 44.4 result was, however, below forecasts.

EUR/USD continues to consolidate.

Recent gains in spot look a little overcooked and corrective losses to the 1.09 area risk extending a little further in the short run to perhaps test 1.0825/1.0850. Intraday resistance is 1.0920/1.0925. Support is 1.0880.”

In a euro forecast issued on November 30, Citigroup economists said the strength of the euro rebound may be limited to the year-end:

“Given expectations for the economy have been so bearish thus far, a bottoming in Euro Area manufacturing could signal a near-term positive for EUR. However, the primary driver of EUR/USD over the medium to longer term is still based on the market expectations for the Fed’s against the ECB’s rates for 2024 and beyond.

The strength of the rebound in EUR/USD may have limited potential to the year-end, but the durability of the rebound could be affected by uncertainty surrounding Germany’s fiscal position due to the recent constitutional court ruling, and Italian’s fiscal constraints due to its weak economic fundamentals being largely ignored. This potentially augurs well for EUR’s outlook in 2024.”

Some institutions were highly bearish on EURUSD in previous months. In October, major Wall Street investment banks J.P. Morgan and Citibank forecast the euro to dollar exchange rate to reach parity by the end of the year.

At the time of writing on Friday, the EUR to USD pair was trading around the $1.0839 level (down over 0.40% on the day), as per MarketWatch data.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.