EUR/USD: The strength of the rebound may have limited potential to the year-end – Citi

EUR/USD has staged a solid rebound since early October. Economists at  Citigroup analyze the pair’s outlook.

A bottoming in Euro Area manufacturing could signal a near-term positive for EUR

Given expectations for the economy have been so bearish thus far, a bottoming in Euro Area manufacturing could signal a near-term positive for EUR. However, the primary driver of EUR/USD over the medium to longer term is still based on the market expectations for the Fed’s against the ECB’s rates for 2024 and beyond. 

The strength of the rebound in EUR/USD may have limited potential to the year-end, but the durability of the rebound could be affected by uncertainty surrounding Germany’s fiscal position due to the recent constitutional court ruling, and Italian’s fiscal constraints due to its weak economic fundamentals being largely ignored. This potentially augurs well for EUR’s outlook in 2024.