Rabobank Slashes Euro Forecast Amid Rising US Rate Hike Expectations
Rabobank has downgraded its one-month forecast for the Euro to Dollar exchange rate (EUR/USD) from 1.16 to 1.14, citing a retreat in Fed hike expectations as necessary for recovery. The bank retains its three-month target of 1.16.
The EUR/USD stood at 1.1377 on Thursday, down 0.04% on the day after Wednesday's 0.58% decline. Rabobank argues that European growth has held up but energy risks discourage investors from rebuilding Euro positions, constraining near-term gains.
The bank estimates markets now assign a 70% chance to an October Fed hike following September’s increase. Its recovery case rests on investors expecting more US tightening than the Fed ultimately delivers: 'Our expectation that EUR/USD will return to 1.16 on a 3-month view reflects the Rabobank house view that the market has priced in too much Fed policy tightening.'