The EUR/USD currency pair stands as a critical barometer of economic interactions and the relative strength between the Eurozone and the United States. This article delves into the recent history, economic outlooks, and analytical euro-to-dollar forecasts for this major currency pair in 2024 and 2025.

Recent EUR/USD History

From 2019 to the present, the EUR/USD currency pair has navigated through turbulent economic waters, influenced by a series of global events and differing monetary policies between Europe and the United States.

Initially, the euro experienced a gradual depreciation against the dollar, moving from around 1.14 at 2019’s open to close the year at 1.12. This was largely due to the European Central Bank's (ECB) continuation of its quantitative easing program, coupled with its persistently low interest rate of 0%.

The onset of the COVID-19 pandemic in early 2020 sent the euro tumbling further to a low of approximately 1.06 as panic gripped global markets. However, recovery was swift, and by September 2020, the euro had climbed to a high of about 1.20, bolstered by the US dollar's comparative weakness.

The euro fluctuated between 1.23 and 1.17 in the first half of 2021. However, inflation began to rise in both the Eurozone and US economy, but more so in the US. The anticipation of steep hikes by the Federal Reserve caused it to close near 1.13 by year's end.

A significant milestone was reached in mid-2022 when the euro fell to parity with the dollar (1.00), driven by the ongoing conflict in Ukraine and acute inflationary pressures in the EU, exacerbated by energy shortages. Notably, the Fed also began raising interest rates in March 2022, with the pair reaching a low of 0.95 in September 2022.

The remainder of the year saw a recovery, with the euro to the dollar closing near 1.07, supported by the ECB’s decision to start increasing interest rates from July to combat inflation.

Throughout 2023, the pair largely ranged between 1.12 and 1.05, though predominantly on the bullish side. This year was mainly driven by anticipated Federal Reserve interest rate cuts and a sense of optimism, helping to drive the so-called safe-haven dollar lower and boost the euro.

As we moved into early 2024, the economic landscape began to show a stark divergence in the economic strengths of the US and the Eurozone. The US economy exhibited robustness through strong economic growth and a tight labour market despite interest rates at 5.5%, raising concerns that the Federal Reserve might maintain higher interest rates for an extended period.

In contrast, economic concerns, particularly around weak growth and easing inflation in the Eurozone, fueled speculations that the ECB may need to lower interest rates from 4.5% sooner than expected. This anticipation led EUR/USD to decline from 1.10 at the year’s open to close the first quarter at around 1.08.

European Economic Outlook for 2024

The Eurozone's economic outlook for 2024 presents a complex landscape shaped by various factors, including monetary policy adjustments, inflation trends, and labour market conditions. As recent statements from the European Central Bank indicate, the economic environment is poised for a gradual recovery, albeit with continued challenges.

Real GDP growth in the Eurozone is expected to be subdued at 0.6% for the year, influenced by residual effects from previous economic challenges and a slower-than-expected recovery. This outlook marks a downward revision from earlier projections, attributed mainly to carry-over effects from 2023's negative data surprises and softer forward-looking indicators. Yet, improvements in household disposable income, which saw a rise to 1.9% year-over-year in late 2023, are projected to support a potential uplift in consumer spending and economic activity.

Inflation is expected to decelerate, with annual average headline Harmonized Index of Consumer Prices (HICP) inflation expected to drop from 5.4% in 2023 to 2.3% in 2024. The decrease is primarily due to easing pipeline pressures and the impact of prior monetary policy tightening. Nevertheless, inflation remains a concern.

Labour costs remain a pivotal factor; while high, there's an observed deceleration in growth, with negotiated wages increasing by 4.5% and compensation per employee rising by 4.6%. This slowdown in wage growth is seen as crucial for controlling inflation without stifling economic growth.

The ECB’s cautious approach towards rate cuts, starting with a likely 25 basis point reduction in June and potentially another two by the end of 2024, reflects ongoing concerns about wage developments and services inflation. Despite these challenges, the ECB is committed to supporting economic stability and ensuring inflation converges sustainably towards its target.

US Economic Outlook for 2024

The economic outlook for the United States in 2024 reflects a period of cautious stabilisation, characterised by ongoing adjustments in monetary policy, resilient employment figures, and persistent inflation concerns. According to recent statements from the Federal Reserve, the primary focus remains on managing inflation while supporting a robust labour market.

GDP growth has moderated from the previous year's high rates but remains solid. After a growth rate of 3.4% in the last quarter of 2023, it slowed to 1.6% in the first quarter of 2024. However, underlying demand, indicated by Private Domestic Final Purchases, grew by 3.1% in the first quarter, reflecting resilient consumer spending despite the high interest rates impacting housing and equipment investment.

The labour market continues to show significant strength. Job gains have averaged 276,000 per month in the first quarter of 2024, and the unemployment rate has maintained a low of 3.8%. This robust job creation is coupled with an increase in labour force participation. However, the ongoing demand for labour continues to exceed the available supply of workers.

Inflation remains a central concern for the Federal Reserve. The Personal Consumption Expenditures (PCE) price index, its preferred measure of inflation, indicates that prices rose 2.7% year-over-year as of March. Core PCE, which excludes food and energy prices, saw a 2.8% increase. Despite a notable easing from the previous year, inflation rates are still above the Fed's 2% target. The recent data has shown signs of stalling in their progress towards the 2% target, presenting a significant challenge for policymakers.

The Fed's current monetary policy aims to stabilise these economic conditions by maintaining the target range for the federal funds rate at 5.25 to 5.5 percent. While the Fed is prepared to keep rates steady to gain greater confidence that inflation is sustainably moving towards the 2% goal, they remain highly attentive to inflation risks.

The balance of risks is considered better aligned with achieving employment and inflation objectives than in previous years. Markets see a potential first 25 bps cut in September 2024, with a 91.5% chance of easing by the end of the year.

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Analytical Euro to Dollar Predictions 2024

Analytical euro to dollar forecasts in the next 6 months see the pair experiencing fluctuating dynamics, heavily influenced by the Eurozone's and the United States' economic and monetary policies.

The Eurozone's slow but steady economic recovery, marked by a projected GDP growth of 0.6% and a decline in HICP inflation to 2.3%, suggests pressure on the euro. The ECB signals potential monetary easing with an initial rate cut anticipated in June, reflecting a strategic shift to stimulate the European economy amid moderating inflation and wage growth rates.

Conversely, the US economy shows more robust growth and persistent inflation, with a GDP growth rate slowing to 1.6% but still supported by strong consumer spending and labour market conditions. The Federal Reserve's stance to maintain the federal funds rate at 5.25 to 5.5 percent into the latter part of the year signals a stronger dollar scenario, as high interest rates in the US compared to Europe attract investment flows towards the dollar.

Euro to Dollar Forecast in 2024

Bank-Based

Q2 2024

• Most Bullish Bank Projection: 1.08 (MUFG, ING)
• Most Bearish Bank Projection: 1.05 (Wells Fargo, JP Morgan, and BNP Paribas)

Q3 2024

• Most Bullish Bank Projection: 1.10 (MUFG, ING, Bank of America)
• Most Bearish Bank Projection: 1.03 (Wells Fargo)
  

Q4 2024

• Most Bullish Bank Projection: 1.20 (Citibank)
• Most Bearish Bank Projection: 1.05 (Wells Fargo)

Algorithm-Based

Q2 2024

• Most Bullish Algorithm-Based Projection: 1.11 (Panda Forecast)
• Most Bearish Algorithm-Based Projection: 1.053 (Financial Forecast Center)
  

Q3 2024

• Most Bullish Algorithm-Based Projection: 1.099 (Financial Forecast Center)
• Most Bearish Algorithm-Based Projection: 1.047 (Long Forecast)
  

Q4 2024

• Most Bullish Algorithm-Based Projection: 1.175 (Financial Forecast Center)
• Most Bearish Algorithm-Based Projection: 1.041 (Wallet Investor)

Analytical Euro to Dollar Predictions 2025

In 2025, analytical euro-dollar exchange rate forecasts see the pair as reflecting the ongoing economic and monetary adjustments within the Eurozone and the United States.

According to the OECD economic outlook, the ECB is expected to continue its monetary easing policy, gradually reducing the deposit facility rate to around 2.5% by the end of the year, aiming to stimulate the European economy amidst moderate inflation and modest GDP growth projections of 1.5%. S&P Global Ratings forecasts that the Federal Reserve will lower its policy rate to a target range of 4.00%-4.25% by year-end as US inflation approaches the Fed's 2% target more sustainably. This easing might narrow, albeit slowly, the divergence between the policy of two central banks.

Both regions exhibit signs of economic stabilisation. The OECD economic outlook says real US GDP will grow by 1.8%, supported by strong labour market conditions and consumer spending. Meanwhile, the Eurozone's growth, driven by improved domestic demand and investment, shows recovery potential, albeit constrained by fiscal tightening and slow structural reforms.

For the EUR/USD pair, the gradual narrowing of the interest rate differential is seen as potentially providing some support to the euro, although significant appreciation is considered unlikely due to the stronger starting position of the US dollar and lingering geopolitical uncertainties affecting the Eurozone. Additionally, any unexpected shifts in inflation trajectories or geopolitical tensions could introduce volatility to the currency pair.

Euro to Dollar Forecast in 2025

Bank-Based

Q1 2025

• Most Bullish Bank Projection: 1.12 (JP Morgan, MUFG)
• Most Bearish Bank Projection: 1.06 (Wells Fargo)
  

Q2 2025

• The only projection For Q2 2025: 1.08 (Wells Fargo, Royal Bank of Canada, BNP Paribas)
  

Q3 2025

• Most Bullish Bank Projection: 1.10 (Wells Fargo)
• Most Bearish Bank Projection: 1.09 (Royal Bank of Canada)
  

Q4 2025

• Most Bullish Bank Projection: 1.20 (Bank of America)
• Most Bearish Bank Projection: 1.08 (Royal Bank of Canada)

Algorithm-Based

Q1 2025

• Most Bullish Algorithm-Based Projection: 1.13 (Panda Forecast)
• Most Bearish Algorithm-Based Projection: 1.03 (Long Forecast)
  

Q2 2025

• Most Bullish Algorithm-Based Projection: 1.119 (ExchangeRates)
• Most Bearish Algorithm-Based Projection: 1.022 (Wallet Investor)
  

Q3 2025

• Most Bullish Algorithm-Based Projection: 1.14 (ExchangeRates)
• Most Bearish Algorithmic-Based Projection: 1.016 (Wallet Investor)
  

Q4 2025

• Most Bullish Algorithm-Based Projection: 1.149 (ExchangeRates)
• Most Bearish Algorithm-Based Projection: 1.004 (Wallet Investor)

General Factors Influencing the EUR to USD Rate

Several key factors play pivotal roles in influencing the exchange rate between the euro and the US dollar. Understanding these can help traders and investors gauge potential currency movements:

• Economic Performance: The relative strength of the US and Eurozone economies significantly impacts EUR/USD. Robust US GDP growth compared to modest growth in the Eurozone typically strengthens the dollar against the euro.
• Monetary Policy: Divergence in the monetary policies of the European Central Bank and the Federal Reserve, such as interest rate decisions and quantitative easing measures, directly affects the currency pair.
• Political Stability: Political events and instability within both the Eurozone and the US can cause price fluctuations. For instance, elections or major policy changes can trigger volatility in the currency markets.
• Global Market Sentiment: In times of global uncertainty, the dollar often strengthens due to its status as a so-called safe-haven currency.
• Trade Balances: Changes in trade balance data, influenced by exports and imports between the two economies, can sway the exchange rate. A higher trade surplus typically supports a nation's currency.

The Bottom Line

Euro-dollar prognoses in 2024 see the Eurozone's weak growth, coupled with the ECB's dovish monetary stance, as indicative of a weaker euro against a relatively stronger dollar. The Fed's cautious approach, focusing on inflation control without immediate rate cuts, is expected to underpin the dollar's strength. Therefore, barring significant geopolitical or economic shocks, the EUR/USD pair is projected to face downward pressure in 2024, potentially favouring the dollar as the stronger currency.

In 2025, while the gap between ECB and Fed policies might lessen, the dollar is expected to maintain relative strength against the euro throughout 2025, influenced by broader economic stability and investment flows.

As we navigate through the complexities of economic forecasts and monetary policies affecting the EUR/USD exchange rate, it becomes evident that understanding these dynamics is crucial for effective trading and investment strategies. For those looking to engage with the forex market, opening an FXOpen account may offer valuable opportunities to leverage these insights into practical financial actions.

FAQs

Is the Euro Getting Stronger?

The euro's strength is influenced by several factors, including economic performance, ECB monetary policies, and global market dynamics. While there are signs of recovery in the Eurozone, divergent policies and stronger economic indicators from the US may limit significant gains for the euro against the US dollar in the near term.

Is the Euro Expected to Rise or Fall in 2024?

For 2024, analytical EUR/USD forecasts indicate the euro may face downward pressure against the US dollar. Anticipated ECB rate cuts aimed at stimulating the European economy, contrasted with a more cautious Federal Reserve approach, could result in a weaker euro.

What Is the EUR to USD Forecast for 2025?

In 2025, analytical euro-to-USD forecasts project the pair to be influenced by continued policy adjustments. Although the ECB and Fed may start to see more aligned policies, the euro is likely to remain under comparative pressure due to the stronger economic recovery trajectory of the US.

What Is the Future of EUR to USD?

Long-term analytical EUR/USD predictions suggest that EUR/USD will continue to be shaped by differences in monetary policy, economic recovery rates, and geopolitical factors. Price movements may be challenged by broader global uncertainties and ongoing policy adjustments in both regions

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