EUR/USD: Risks are clearly tilted to the downside – Wells Fargo

ECB gave its clearest indication yet that the peak in policy interest rates might have been reached. Economists at Wells Fargo believe the risks for the Euro remain tilted to the downside for the balance of 2023.

Recovery in EUR/USD to around 1.1100 by Q4-2024

Given the likely end to ECB rate hikes and underwhelming Eurozone growth performance, the risks to our Euro forecast, which envisaged a low around 1.0600 during Q4-2023, are clearly – and perhaps significantly – tilted to the downside. 

Our forecast also envisages a recovery in the Euro to around 1.1100 by Q4-2024, although that rebound has much more to do with a turn in US economic fortunes than any emphatic recovery in the Eurozone economy. 

We expect that a mild US recession and relatively pronounced Federal Reserve rate cuts should see the USD weaken versus the Euro. However, if the US economy continues to display surprising resilience and the Fed adopts a more gradual approach to monetary easing, we also view the risks as tilted towards a more gradual Euro rebound than our current outlook.