Euro forecast: third party data roundup
In 2024, the euro’s outlook appeared more stable. Read on for our 2025 and beyond insights.
The euro (EUR) experienced significant volatility in 2022 due to investor concerns over a potential economic recession in Europe amid the ongoing war in Ukraine, surging borrowing costs, and persistently high inflation. Throughout 2023, the European Central Bank (ECB) continued its tightening cycle, raising the key interest rate by 50 basis points in February and again in March. Subsequent hikes followed, with the ECB maintaining a hawkish stance as inflationary pressures remained stubborn, though showing signs of easing by the end of the year.
In 2024, the euro’s outlook appears more stable. That said, over the past four weeks, the EUR/USD exchange rate has dropped by 3.9%, as the dollar has recovered some bullishness after months of selloffs. The pair did manage to rise over 5% in the previous five months as the ECB took charge in adjusting its monetary policy to the softening in inflation and growth.
Recent data from the Purchasing Managers’ Index (PMI) in September 2024 indicated mixed signals. While services output continued to expand, the manufacturing sector has faced headwinds, reflecting sluggish global demand. Growth across the eurozone has slowed but remains positive, with inflation pressures abating as energy prices stabilised and supply chain disruptions eased.
EUR/USD live exchange rate chart
Read on for the latest euro news, as well as analysts’ euro predictions for 2025 and beyond.
Euro forecast 2025
The euro area is projected to see moderate economic growth in 2025, with GDP expected to expand by 1.5%. This marks a recovery from weaker growth in previous years, including the 0.8% growth forecast for 2024. Inflation in the euro area is expected to decline steadily, reaching 2.2% by 2025, down from 2.7% in 2024 and 5.4% in 2023, reflecting the easing of inflationary pressures.
JP Morgan's predictions for the EUR/USD in 2025 suggest a steady but cautious outlook. The bank sees the euro potentially reaching around 1.12 by Q1 2025, with the dollar maintaining strength due to higher U.S. interest rates and robust economic conditions. However, the euro could face challenges as the European Central Bank (ECB) is likely to maintain a monetary easing stance, which could limit significant appreciation of the euro.
Other predictions from major analysts reflect a mixed view, with some projecting that EUR/USD might hover between 1.08 to 1.12 throughout 2025. Wells Fargo, for example, maintains a slightly bearish outlook, expecting the pair to stay near 1.08, while others like Bank of America foresee the possibility of it reaching as high as 1.17 in later quarters
Overall, the consensus indicates the euro will struggle to gain significant ground against the dollar, primarily due to divergent economic fundamentals and interest rate policies between the Eurozone and the U.S.
How did the euro trade in 2024?
In 2024, the EUR/USD has shown volatility, reflecting shifts in economic conditions across the Eurozone and the U.S. Early in the year, the euro lost some ground, dropping by about 3% in Q1 due to the strength of the U.S. dollar, which was supported by the Federal Reserve's persistent higher interest rates. The EUR/USD traded in a range of 1.1047 to 1.0709 during this period.
However, by mid-2024, the euro began to regain strength, driven by preemptive rate cuts from the ECB and a potential weakening of the U.S. dollar as the Fed was expected to embark on a more prominent cutting cycle.
By the end of September, EUR/USD was trading above 1.12, with some bullish momentum seen throughout the summer months. Despite this, uncertainties about the health of the European economy and a softening in rate cut expectations from the Federal Reserve has seen the pair correct lower at the start of Q4.
Overall, while there has been a slight recovery in the euro, the pair remains sensitive to ongoing economic conditions and central bank decisions.
Past performance is not a reliable indicator of future results.
What has been driving the euro?
Slowing growth and inflation
Slowing Growth and Inflation
Euro area inflation fell to 1.7% in September 2024, down from 2.2% in August. Although inflation is slowing, analysts believe the ECB needs to maintain a hawkish stance.
Energy price pressures have eased due to mild winter conditions, and economic surprises in the eurozone continue to strengthen, helping the ECB sustain its hawkish tone. That said, the ECB is seen as the most dovish compared to the Federal Reserve and the Bank of England, which puts pressure on the euro as the rate differentials play against it.
PMI Data
The Eurozone Composite PMI dropped to 49.7 in October 2024, indicating a slight contraction in business activity
European Central Bank rate rises
In 2023, the European Central Bank (ECB) took a notably aggressive stance on inflation control through a series of interest rate hikes, leading to a cumulative increase of 450 basis points from July 2022 to September 2023. This push came in response to persistently high inflation across the euro area.
At the latest meeting in October 2024, the ECB implemented another rate cut, reducing its main rate from 3.5% to 3.25%. This adjustment marked the ECB’s third rate reduction since June 2024. The decision was influenced by declining inflation, which dropped to 1.7% in September, below the ECB’s 2% target for the first time in several years. The ECB expressed optimism regarding inflation trends, though it anticipates a potential short-term increase before achieving a stable target rate in the upcoming year.
While the ECB hasn't indicated further rate cuts in December, the bank’s ongoing monitoring of economic and inflation indicators could shape future decisions. Analysts are closely watching the ECB's next moves amid slower economic growth across the eurozone.
Expectations for the ECB rates in 2025 suggest a continued path of gradual easing in response to softening inflation and subdued economic growth across the eurozone. As of October 2024, the ECB has lowered its deposit rate to 3.25% with economists forecasting a shift toward a more neutral rate between 2.00% and 2.50% by mid-2025. This adjustment would align with the ECB's gradual reduction in borrowing costs as inflationary pressures are anticipated to ease further, potentially reaching below the ECB’s 2% target.
Predictions for 2025 also hinge on the pace of U.S. Federal Reserve decisions, which could accelerate ECB rate cuts if U.S. policy easing outpaces eurozone adjustments. Overall, the ECB's rate reductions are expected to contribute to more favourable borrowing conditions, providing support to eurozone growth while balancing inflation objectives.
GEOPOLITICS
Recent geopolitical developments have had substantial impacts on the euro and are likely to continue influencing it through 2025. Key factors include the ongoing conflict in Ukraine, the escalation of tensions in the Middle East, and uncertainty stemming from major elections in both the U.S. and the EU. These events are fueling market volatility and driving demand for safer assets like the U.S. dollar, which puts pressure on the euro.
The ongoing wars contribute to rising oil prices and economic instability, directly affecting the eurozone’s energy import costs and inflation levels. This reliance on energy imports from volatile regions exposes the eurozone to both inflation risks and economic slowdowns, as rising costs affect both consumer purchasing power and industrial competitiveness within the EU. The European Supervisory Authorities warn that this high-stakes environment could lead to sudden market shifts and urge financial institutions to remain prepared for rapid changes in the economic landscape.
On a broader level, the upcoming U.S. and EU elections add layers of uncertainty to the markets, with potential policy shifts that may influence both the U.S. dollar and euro exchange rates. These uncertainties have kept demand high for safer assets, often strengthening the dollar at the euro’s expense. If volatility persists, investors may continue favouring the dollar over the euro, impacting EUR/USD values into 2025.
Euro trading strategies to consider
Before entering your first forex trade, having a well-defined forex trading strategy is crucial. A strategic approach not only helps streamline your decision-making process but also minimizes the impact of emotional biases.
Successful forex traders often blend technical analysis and fundamental analysis to guide their trading decisions. Below, we outline key forex trading strategies to help you choose the one that aligns best with your trading goals and risk tolerance.
Day Trading: Seizing Opportunities in Intraday Movements
Day trading involves entering and exiting positions within the same trading day. By leveraging technical analysis tools, such as price trends and chart patterns, day traders identify optimal entry and exit points.
- Key Tip: Focus on high-liquidity currency pairs and use stop-loss orders to mitigate risk in volatile conditions.
Swing Trading: Capturing Multi-Day Price Movements
Swing trading aims to capture price swings over days or weeks. Traders rely heavily on technical indicators like moving averages, oscillators, and Fibonacci retracements to identify potential turning points in currency prices.
- Strategy: Swing traders often take a position near market tops or bottoms, speculating on a reversal or continuation of a trend.
- Who It's For: This approach suits traders who prefer a less time-intensive strategy than day trading but are still active in the market.
Position Trading: Long-Term Profit Potential
Position trading is ideal for those with a focus on fundamental analysis, including economic trends, central bank policies, and geopolitical events. This strategy involves holding positions for extended periods—months or even years—to capitalize on macroeconomic factors driving currency prices.
- Example: A position trader might take a long position on a currency expected to appreciate due to sustained economic growth or favorable interest rate policies.
- Considerations: Patience and a long-term perspective are essential, as short-term fluctuations are largely ignored.
Trend Trading: Riding the Wave of Market Momentum
Trend trading leverages historical price data and trend indicators to align trades with prevailing market momentum. This strategy works across short, medium, and long-term timeframes.
- Tools: Oscillators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) help identify entry and exit points.
- Best Practices: Avoid countertrend trades unless supported by strong technical signals or fundamental catalysts.
Balancing risks and reward in Forex trading
To succeed in forex trading, it's important to manage the balance between risks and rewards effectively. Here are some key practices:
- Education: Gain a thorough understanding of forex markets, technical analysis, and fundamental analysis.
Risk Management: Use tools like stop-loss orders, position sizing, and risk-reward ratios to protect your capital.
Discipline: Stick to a trading plan and avoid emotional decision-making.
Diversification: Avoid putting all your capital into a single trade or currency pair.
Regulation: Choose a regulated broker to ensure security and transparency.
Successful forex trading requires preparation, strategy, and the ability to manage risks effectively. Understanding both the rewards and risks will enable you to navigate the market with greater confidence.
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