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Mar 15 - 10:55 AM

BofA: Diving into EUR/USD Dynamics; What's Next?

By eFXdata  —  Mar 15 - 09:35 AM

Synopsis:

Bank of America (BofA) attributes the recent outperformance of the Euro against a weakening US dollar to early indications of US/Euro area growth convergence, a theme they predict will unfold throughout the year. Despite hot data from the US in January, more recent figures hint at a beginning trend of growth convergence between the two regions, which could influence the global cycle of interest rate cuts.

Key Points:

  1. EUR Performance: The Euro has been one of the top performers amidst a broader sell-off in the US dollar, signaling early signs of US/euro area growth convergence.
  2. Policy Adjustments: BofA suggests that the "soft landing" scenario and the growth recoupling will prompt the Federal Reserve and the European Central Bank (ECB) to adjust their policies in tandem within the year.
  3. Data Trends: Recent data trends in both the US and the Euro area may be indicating the early stages of this growth convergence, supporting the case for a closer policy alignment between the Fed and the ECB.
  4. USD Overvaluation: The current overvaluation of the US dollar against the Euro forms the basis of BofA's forecasts, which predict EUR/USD reaching 1.15 by the end of 2024 and 1.20 by the end of 2025.

Conclusion:

Bank of America remains optimistic about the Euro's performance relative to the US dollar, projecting a continuation of the recent rebound. The anticipated growth convergence between the US and the Euro area, alongside the expected parallel policy adjustments by the Fed and the ECB, supports BofA's bullish outlook for the EUR/USD pair in the medium to long term.

Source:
BofA Global Research

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