Euro-Dollar Rate Expected to Fall Towards $1.1214 This Summer
Lloyds Bank's FX strategist Nicholas Kennedy expects the Euro-Dollar (EUR/USD) exchange rate to fall towards $1.1214 this summer due to persistent US inflation risks restoring the Dollar's interest-rate advantage.
The current EUR/USD rate is at $1.1371, down 0.05% on the day and from $1.1438 the previous Friday. This decline marks four out of five sessions for the pair, with it finishing just above July's low at 1.1362.
Lloyds points to resilient household consumption, a steady labour market, rising equity-market wealth, and the AI investment boom in the US as contributing factors to its forecast. In contrast, Europe faces a less supportive combination of higher input costs and tighter monetary policy weighing on the Eurozone's already-fragile demand and confidence.
The bank believes that markets may still be underpricing the Federal Reserve's potential rate increases, with only 13 basis points of tightening priced through to mid-2027. This could lead to a shift in US-Eurozone rate differentials back in favor of the Dollar, even if the European Central Bank retains a hawkish policy stance.
A further drift down towards EUR/USD $1.1214 remains Lloyds' expectation over the summer, with initial support at July's 1.1362 low and next technical support at 1.1065 if the pair falls below the 1.12 region.