Synopsis:
HSBC has raised its EUR/USD year-end 2025 forecast to 1.04 (from 0.99), citing optimism over European fiscal expansion and a shift in security strategy. The new targets are 1.09 by end-Q1 and 1.08 by end-Q2, though trade war risks could cap further upside. While expansionary fiscal policy could drive stronger EU growth, implementation challenges and potential US tariffs remain key downside risks.
Key Points:
1️⃣ 2025 Year-End EUR/USD Forecast Raised to 1.04 📊
- Previously at 0.99, now reflecting stronger EU fiscal prospects.
- New targets: 1.09 by end-Q1, 1.08 by end-Q2.
2️⃣ European Fiscal Expansion Could Boost EUR Further 🇪🇺
- Germany’s proposed spending plans have triggered optimism.
- EU cooperation on economic governance could create a positive feedback loop.
- However, parliament approval is still pending, and execution may be slower than expected.
3️⃣ US-EU Trade War Risks Remain a Major Headwind 🌍
- US tariffs on EU imports could damage growth if the bloc retaliates.
- Trade tensions could gradually push EUR/USD lower over the coming quarters.
4️⃣ Upside Risks If Europe Strengthens More Than Expected 🔄
- If fiscal reforms accelerate and investment picks up, EUR/USD could rally beyond HSBC’s baseline scenario.
Conclusion:
HSBC raises its EUR/USD outlook but remains cautious about trade war risks and fiscal execution challenges. While greater EU cooperation and German stimulus could support the euro, US tariffs remain a downside threat. The pair is expected to rise in early 2025 but shift lower later in the year unless optimism around Europe’s economic reforms strengthens further.
