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Mar 18 - 02:55 PM

BNP Paribas: Adjusting EUR/USD Forecast for Slower Appreciation

By eFXdata  —  Mar 18 - 01:30 PM

Synopsis:

BNP Paribas revises its EUR/USD forecast, expecting a slower pace of appreciation through the end of 2024 and projecting the currency pair to reach 1.10 by year-end. The bank now anticipates the majority of the appreciation to unfold in 2025, adjusting the end-of-year forecast for 2025 to 1.14, down from the previously projected 1.15 for 2024 and 1.18 for 2025. This moderation reflects a balanced view of flow dynamics favoring the EUR, against a backdrop of strong US growth, anticipated ECB rate cuts exceeding those of the Fed, and the EUR's attractiveness as a funding currency in the current carry-trade environment.

Key Points:

  • Flow Dynamics Support EUR: The Eurozone's Broad Basic Balance of Payments remains robust due to a current account surplus not being fully recycled abroad, potentially supporting the EUR in the near term.
  • Moderated Appreciation: Factors such as stronger US economic performance, greater ECB rate cuts compared to the Fed, and the EUR's role in carry trades contribute to a more gradual appreciation pace for EUR/USD than previously expected.
  • Revised Forecasts: BNP Paribas adjusts its forecasts to 1.10 by the end of 2024 and 1.14 by the end of 2025, reflecting a shift in the expected timing and magnitude of EUR/USD appreciation.

Conclusion:

While supportive flow dynamics may lend some strength to the EUR, a combination of stronger US economic indicators, a more aggressive easing stance from the ECB compared to the Fed, and the current preference for carry trades suggest a moderated pace of EUR/USD appreciation. BNP Paribas' updated forecasts anticipate a slower climb for the currency pair, with significant appreciation now expected in 2025 rather than the immediate term.

Source:
BNP Paribas Research/Market Commentary

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