Rabobank Slashes Euro Forecast to 1.12 Amid French Debt Concerns

Rabobank has downgraded its Euro forecasts, citing concerns over French debt and the US Dollar's enduring appeal. The bank now sees the EUR/USD exchange rate at 1.12 by next year, a reduction from its previous forecast of 1.18.

The downgrade comes despite a weak US jobs report, which initially caused the Dollar to retreat. However, Rabobank argues that Europe's growing problems leave investors with few attractive alternatives to the Dollar.

Jane Foley, a senior FX strategist at Rabobank, notes that French bond selling has become a Euro problem, unlike earlier budget disputes when money stayed within the currency area. The recent widening in the gap between French and German 10-year borrowing costs is sharper than before, raising the prospect of outflows.

Foley also highlights low European gas storage, expensive energy, and competition from China as constraints on the Euro's appeal. She emphasizes that the Dollar retains structural support from its role in trade and payments.