EUR/USD forecast: Will the euro rise continue?
The euro (EUR) to US dollar (USD) exchange rate has risen over 5% over the past six months on the back of moderately improved economic sentiment in the eurozone, as well as the slowing of interest rate hikes by the US central bank, which has reduced the greenback’s appeal as a safe haven.
A softening of the US Federal Reserve’s (Fed) policy in mid-December supported the euro – both the European Central Bank (ECB) and the Fed have reiterated their resolve in tackling inflation, saying there are more rate hikes to come.
As of 12 May 2023, EUR/USD was trading at $1.08.
EUR/USD live exchange rate chart
Here we look at the factors driving the currency pair and the euro to dollar forecast for 2023 and beyond. What lies ahead for EUR/USD, as it continues to rise further away from the parity level?
How did EUR/USD trade in 2022?
The EUR/USD started 2022 at $1.1375. The pair rose to a high of $1.1495 in early February before steadily dropping to $1.0380 on 13 May – a level last seen in January 2017. At the start of June the currency pair rose to $1.0790, before declining again in the same month to $1.04.
On 5 September, the pair dipped below the $0.99 level for the first time in two decades as Russia shut down its main gas pipeline to the EU, further destabilising the economic outlook in the eurozone. EUR/USD then went on a brief rally influenced by the ECB’s interest rate decision on 8 September. The pair peaked again at at $1.0317 on 12 September, before falling on 27th September to its lowest point of 2022 at at $0.95892.
The ECB’s interest rate decision on 27 October did little to support the euro, with the currency falling below parity up until 3 November.
A weaker dollar and falling US Treasury yields drove EUR/USD back up to trade around the $1.06 level in mid-December. The pair benefited from a general dollar weakness as inflationary pressures in the US continued to ease, while the ECB lifted interest rates by 50 basis points (bps) as expected on 15 December, reiterating that more hikes will follow and outlined plans for quantitative tightening.
What is your sentiment on EUR/USD?
What has been driving the euro?
Inflation and slowing growth
Headline inflation in the euro zone fell to 8.5% in February, data shows that it was down from 8.6% the previous month. Despite this forecast drop, analysts suggest that there is still a need for continued hawkishness from the ECB, and a possible cooling of rate hikes from the US Federal Reserve, which could be positive for the euro.
In addition, the threat of high energy prices in the euro zone has also dimmed, due to a mild winter in much of northern Europe.
Russian gas crisis
The International Energy Agency (IEA) reported in January 2023 that Europe made “impressive progress” in 2022 in reducing its reliance on Russian gas supplies and making sure it had enough gas in storage. EUR/USD exchange rate has been up over 5%, since September, when Russia halted supplies of gas via its main pipeline to Europe.
However, the IEA states that danger remains on the horizon. Russian gas deliveries could be “considerably lower” in 2023 – or drop to zero. This could create an even bigger gap in European and global gas supplies than in 2022.
The IEA has stated that competition for supplies of liquified natural gas (LNG) could also rise, if demand from China picks up. There’s also no guarantee that Europe’s mild winter temperatures will continue.
As a result, the European Union could face a shortage of 30 billion cubic metres of natural gas in 2023.
ECB’s hawkish stance
Rising inflation has pushed the ECB to adopt a more hawkish stance and this has continued into 2023. ECB policymaker Robert Holzmann told a conference in January that “policy interest rates will have to rise significantly further to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.”
However, Englander also pointed out that the data surprises in the US have been “middling to weaker” than in Europe, indicating less upward pressure on rates.
Inflation in the euro zone dropped for a third consecutive month in January on the back of a significant fall in energy costs. Headline inflation in the euro zone came in at 8.5% in January, compared to December's rate of 9.2%.
Philip R. Lane, Member of the ECB's Executive Board projects a substantial decline in inflation later in 2023 that extends into 2024 and 2025.
On 2 February, the ECB raised intererst rates once again by 50bps, its first hike in 2023. The hike brought the key interest rate to 2.5%.
In a statement, the central bank indicated that further interest rates could be expected this year, vowing to “stay the course in raising interest rates significantly at a steady pace”.
What has been driving the USD?
Hawkish US Federal Reserve
In 2022, the dollar benefited from a hawkish Federal Reserve, particularly in comparison to the ECB. As inflation in the US rose to a 40-year high, the Fed quickly ended its bond-buying programme and started a rate-hiking cycle.
Since January 2023, the USD has declined 0.43% year-to-date, based on the US dollar index (DXY), which measures the USD versus a basket of currencies.
The USD benefited from its safe-haven status as demand for the greenback rose following Russia’s invasion of Ukraine. Since then, safe-haven flows have largely continued as fears of slowing global growth and stagflation have ramped up, despite a recent pullback triggered by a potential slowing of the monetary contraction cycle in the US.
The annual inflation rate for the US is 6.4% for the 12 months ended January 2023 after rising 6.5% previously, according to US Labor Department data.
On 1 February, the Fed raised interest rates by 0.25 percentage points, bringing the rate to the target range of 4.5%-4.75%, the highest since October 2007. US Federal Reserve Chairman Powell, indicated that rates could continue rising in 2023, stating that they would “need substantially more evidence to be confident that inflation is on a sustained downward path”.
In March, Powell signaled again to further higher interest rate hikes over a longer period of time.
The markets now expect the Fed to raise rates by 0.25 percentage points at its meeting in March, and there is an expectation that there will be two more moves before stopping, with the end point of around 5.25%.
EUR/USD forecasts: 2023 and beyond
With central bank action very much in focus, let’s look at where analysts’ EUR/USD predictions are.
In a foreign exchange analysis from 16 January, ING Group’s Chris Turner, Francesco Pesole and Frantisek Taborsky revised up the EUR/USD forecast for 2023-2024:
“In terms of a quarterly profile this year, a good proportion of the year's EUR/USD gains could come in the second quarter when we expect US core inflation to fall sharply, allowing the short end of the US yield curve to adjust lower too.”
ING’s adjusted EUR/USD forecasts projecting the pair to trade at:
- $1.00 by Q2, Q3 and Q4 2023.
- $1.02 in Q1 2024
- $1.10 by Q4 2024.
In his Daily FX Update from 31 January, Shaun Osborne, chief foreign exchange strategist at Scotiabank, commented:
Technically, Osborne was neutral/bearish on the pair, saying: “EUR/USD losses have extended a little more than I anticipated at this point yesterday, with spot testing the low 1.08s earlier before recovering slightly. Gains are enough to stem downside pressure for now but there is scant sign of a firm technical reversal at this point. Further losses remain a risk in the next few hours but I still rather think moderate dips remain a buy. The broader trend in the EUR remains bullish from a technical point of view and a push on to 1.10+ remains on the cards before a deeper consolidation develops. Support is 1.0775/00.”
The latest EUR/USD forecast from analysts at Citibank Hong Kong was fairly optimistic, predicting a six to 12-month rise to was $1.15 that could be maintained long term.
In a recent overview of the euro to dollar outlook, Capital.com analyst Piero Cingari opined:
EUR/USD forecast 2023
The EUR/USD exchange rate has fallen 0.056% year-to-date. The euro to dollar pair began 2023 at $1.0662 and rose 1.49% throughout the month of January. Analysts forecast that for the month of March it could reach $1.10.
JP Morgan states that with the Title Transfer Facility (TTF) gas prices, the key benchmark for gas prices in Europe, having collapsed to pre-invasion lows as the continent experiences the warmest weather on record. This sharp fall in gas and electricity prices aid the economy and should mean the region can avoid the harsh recession that was expected.
JP Morgan Research said:
Algorithm-based website Wallet Investor’s EUR/USD forecast predicted the pair rising in the next few months – as of 12 May, the service expected the pair to trade at an average of $1.100 by the end of the year.
The EUR/USD forecast for 2023 from AI Pickup was even more bullish. The website saw the pair averaging a rate of $1.16 this year and continuing to rise the following years, reaching $1.25 in 2024 and $1.35 in 2025. However, the platform’s EUR/USD forecast for 2030 saw it rising further to $1.4, before falling to $1.25 in 2031.
Remember that analysts and online forecasting sites can and do get their predictions wrong. It is always best to carry out your own research and weigh the latest market trends and news, technical and fundamental analysis, and expert opinion before making any investment decisions. Never invest money you cannot afford to lose.
EUR/USD forecast 2025
Wallet Investor was not optimistic, projecting a closing rate of $1.068 in January 2025 and $1.016 in January 2027. This downbeat forecast was echoed by the Economy Forecast Agency, which forecast that the EUR/USD rate could close barely above $1 in 2025, at $1.003. The site further predicted that in 2026, the pair wouldn’t rise above $1 at all.
EUR/USD forecast 2030
AI Pickup EUR/USD forecast for 2030 saw the pair trading at $1.4, before dropping to $1.17 in 2032.
Remember that analysts and online forecasting sites can and do get their predictions wrong. It is always best to carry out your own research and weigh the latest market trends and news, technical and fundamental analysis, and expert opinion before making any investment decisions. Never invest money you cannot afford to lose.
FAQs
Why is EUR/USD rising?
The EUR/USD pair has been rising in recent months as the euro continues to benefit from improved sentiment in the eurozone and expectations of a slowing US Federal Reserve rate hike cycle.
Will EUR/USD go up or down?
The direction of the euro could depend on whether the gap between economic growth and interest rates in the US and Europe continues to widen.
When is the best time to trade EUR/USD?
The best time to trade a currency pair is when the local markets for the two currencies overlap. For the euro against the dollar, this would be between 13:00 and 16:00 GMT (UTC). This is also usually when US economic data is released.
Is EUR/USD a buy or sell?
Whether EUR/USD is a good investment for you or not will depend on your portfolio composition, investment goals and risk profile, among other factors.
Different trading strategies will suit different investment goals with a short or long-term focus. Remember, currency pairs can be highly volatile. You should do your own research and never invest money you cannot afford to lose.
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