The Euro’s Expected 10% Surge: Understanding the Background

Economic Indicators

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RBC Global Asset Management predicts a roughly 10% increase in the Euro in 2024. The forecast is underpinned by multiple factors, revealing a clear interaction with global economic trends. Below, we explore five perspectives to comprehend the background of this prediction.

Prediction of Euro Surge and Its Reasons

According to RBC analysts, the Euro is expected to reach 1 Euro = 1.21 USD. This forecast is supported by a general weakening of the US Dollar and a gradual inflow of Euro funds from overseas. The subdued performance of the Dollar since the end of October, influenced by the Federal Reserve’s quarterly forecast indicating a more significant than expected decrease in the Federal Funds rate for the next year, is a notable factor. Additionally, concerns expressed by ECB President Lagarde regarding inflation contribute to the Euro’s upward trajectory.

Correlation between Dollar Weakness and Euro Strength

The rise in the Euro is closely correlated with the general weakness of the US Dollar. Despite a less optimistic outlook for the European economy, the overall decline in the Dollar is propelling the Euro upward. RBC analysts point out that the tailwind from the general Dollar weakness is contributing to the Euro’s ascent, serving as a factor to keep the Euro robust by the end of the year.

Outlook for Yen Appreciation and Dollar Depreciation, Depending on Japan’s Interest Rate Policy

Next year, a progression towards Yen appreciation and Dollar depreciation is anticipated, contingent upon the changes in the interest rate policies of the United States and the Bank of Japan. The forecast suggests that amid Dollar depreciation, the Yen is poised to rise, becoming one of the best-performing currencies. However, this outlook is heavily dependent on both Dollar depreciation and the Bank of Japan’s potential shift in interest rate policies, making it a closely monitored aspect in the overall market dynamics.

Pound Outlook and the Impact of External Investments

Supported by Dollar weakness, the British Pound is expected to rise to 1 Pound = 1.31 USD next year. While influenced by external investments, the Pound’s upward trend is sustained by Dollar weakness. Historical data indicates that the return of funds invested abroad is limited, creating expectations for a robust performance of the Pound.

Outlook for Euro Demand and the Influence of Interest Rates

Euro demand is predicted to gradually and sustainably increase, influenced by the rise in short-term interest rates and capital flow. The increase of 4.5 points in short-term interest rates over the past year and a half is seen as a catalyst for capital flow. As the economic outlook in Europe improves, an acceleration in the allocation shift towards the Euro is anticipated, further supporting the Euro’s upward momentum.

These intertwined factors contribute to the prediction of the Euro’s ascent. However, given the ongoing uncertainty in the global economy and potential shifts in financial policies across countries, the market remains susceptible to fluctuations. Investors should remain vigilant and engage in risk management while considering these factors.

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