In 2024, we expect the Euro to weaken against both the Japanese Yen and the Scandinavian currencies, and to only make incremental gains against the unloved British Pound.

We only forecast modest growth, with GDP increases of 0.8% in 2024 and 1.1% in 2025, but this should be enough to take EUR/USD higher.

Relative short-term rates are now moving back in the Euro’s favour, thanks to a market rethink about the outlook for Fed policy as growth slows and inflation falls. Our forecasts for the 2-year rate differential look for it to narrow to below 1% over the next year, where it was trading in 2021. We don’t, however, expect EUR/USD to return to the levels it reached then, given the growth hurdles still facing the Eurozone.

EUR/USD – 1Q24 1.10 2Q24 1.12 3Q24 1.14 4Q24 1.16