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Feb 29 - 02:55 PM

BofA: Maintaining Bullish EUR/USD Outlook with Slight Forecast Adjustment

By eFXdata  —  Feb 29 - 01:30 PM

Synopsis:

Bank of America (BofA) maintains its optimistic stance on EUR/USD, projecting it to reach 1.15 by the end of the year, despite a minor adjustment to their Q3 forecast from 1.15 to 1.12. The EUR's performance against the USD this year has been relatively stable, closely mirroring rate differentials in a low volatility environment. BofA's bullish outlook is rooted in expectations of a slowing US economy and forthcoming Federal Reserve rate cuts, which are anticipated to favor risk sentiment and contribute to a broader USD depreciation against G10 currencies.

Key Points:

  • EUR/USD Performance: The EUR has slightly declined against the USD this year but has shown resilience in cross-currency trades. Its movement has been consistent with rate differentials amid subdued volatility.

  • US and Euro Area Growth Dynamics: BofA's economists predict a significant slowdown in US sequential growth from its robust levels in the second half of the year, while Euro area growth is expected to recover gradually from low points.

  • Fed Rate Cuts and Risk Sentiment: Anticipated Fed rate cuts, in the context of a soft US landing, are expected to enhance risk sentiment, thereby exerting downward pressure on the USD.

  • EUR/USD Forecast Adjustments: BofA slightly revises its EUR/USD Q3 forecast to 1.12, expecting a more gradual USD weakening trajectory. However, the bank's year-end forecast remains at 1.15, above the consensus expectation of 1.12 for this year.

Conclusion:

BofA's bullish forecast for EUR/USD is primarily influenced by anticipated shifts in the US economic landscape and Federal Reserve policy, rather than developments within Europe and the ECB. While a slight revision has been made to the Q3 forecast, the overarching expectation is for the EUR to appreciate against the USD as the year progresses, supported by moderating inflation and potential Fed cuts. BofA's projections remain more optimistic than consensus, envisioning EUR/USD at 1.20 by 2025.

Source:
BofA Global Research

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