(News Bulletin 247) – The chief currency strategist of the American bank indicated to Bloomberg that he anticipates the euro at 1.02 dollars at the end of December, compared to more than 1.10 dollars at present. An opinion that diverges greatly from the consensus.

The euro took its revenge on the stock market this summer against the greenback. From around $1.07 at the end of June, the eurozone currency has risen to $1.1045 at present, with a peak of $1.12 at the end of last month.

Disappointing US data coupled with expectations of significant rate cuts by the US Federal Reserve (Fed) have caused the dollar to fall, particularly against the euro. According to CME Group’s FedWatch tool, investors are currently anticipating Fed rate cuts of around 125 basis points (1.25 percentage points) by the end of 2024.

Could the trend suddenly reverse? Morgan Stanley’s currency strategists are in any case betting on a 7% fall in the euro against the dollar by the end of the year.

In an interview with Bloomberg, their leader, David Adams, indicated that his teams were counting on the euro being at 1.02 dollars at the end of December 2024.

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ECB Rate Hikes

This forecast is based essentially on the assumption that the European Central Bank cuts rates at each of its next three meetings, including Thursday’s, with a potential rate cut of 50 basis points (0.5 percentage points) at any given time.

“There is plenty of room for the market to refocus on the fact that the ECB could cut deeper and faster than is currently being planned,” David Adams, who previously worked at the Federal Reserve Bank of New York, told Bloomberg. “This week’s meeting could be an important catalyst for the market to start thinking about that,” he added.

“If the indicators (economic, editor’s note) continue to deteriorate in Europe, the market must start thinking not only about 25 basis points per quarter, but perhaps 25 basis points at each meeting or perhaps even the risk of a 50 basis point reduction (…)”, he added.

The strategist also mentions political uncertainty in Europe as a factor that could cause the eurozone currency to fall against the dollar. Aside from the political turmoil in France, the market expert points to Germany, with the breakthrough of the far-right party, the AfD (“alternative für Deutschland”, “an alternative for Germany”), in the recent local elections.

Still, this forecast remains iconoclastic. The Bloomberg consensus is for the euro to reach $1.11 at the end of the year. Bank of America anticipates a rate of $1.12 over the same period. Last week, UBS raised its projection to $1.12 per euro at the end of 2024 and $1.15 at the end of 2025 because it believes that the dollar’s weakness will persist.

The institution speaks of a decline in “American exceptionalism”, that is to say the capacity of the United States to display economic performances superior to those of all developed countries.