Despite Recession Concerns... "Euro to Rise 10% Next Year"

Fed Rate Cut Leads to Weak Dollar Outlook
"Yen Value Also Rises to 130 Yen per Dollar"

There is a forecast that the value of the euro will rise by about 10% next year. Although concerns about a European economic recession are deepening, the dollar is expected to decline more rapidly as the United States plans to cut interest rates next year.

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According to Bloomberg on the 20th (local time), RBC Global Asset Management predicted this in its 2024 investment outlook report, anticipating a broad weakness in the dollar next year and a gradual return of overseas investors to euro investments.

The current euro-dollar exchange rate is around $1.095. RBC Asset Management expects the euro value to rise to $1.21 per euro, surpassing Bloomberg experts' forecast of $1.12.

The driving force behind the euro's rise is the dollar. As the U.S. Federal Reserve (Fed) is expected to cut interest rates next year, the dollar has shown weakness. Since the Fed held rates steady twice consecutively on the 1st of last month, the dollar spot index has fallen by 4%. During the same period, the euro's value against the dollar rose by 3.6%. Initially, there were forecasts that euro-dollar parity (1:1 exchange) could be realized within the year due to prolonged high U.S. interest rates, solid growth, and concerns about a European recession, but the dollar's decline boosted the euro's value.

Moreover, Fed Chair Jerome Powell fueled the weak dollar outlook further by stating on the 13th, after the third consecutive rate hold, that "discussions on when policy easing (rate cuts) would be appropriate have become more visible." The Fed lowered its year-end rate forecast on the dot plot from 5.1% in September to 4.6% this month. On the other hand, Christine Lagarde, President of the European Central Bank (ECB), warned not to lower vigilance in the fight against inflation and dismissed the possibility of a pivot (monetary policy shift), suggesting the euro will continue to strengthen for the time being.

Dagmara Pialkowska, Global Head of Bonds and Currencies, said, "The tailwind from the U.S. dollar's decline will contribute to the euro rally," adding, "Even if rosy prospects for the European economy are lacking, the euro will end the year with even stronger gains."

Another factor expected to increase euro investments is that only a very small portion of the 4 trillion euros that left the region during the ECB’s negative interest rate period from 2014 to 2022 has returned to the Eurozone.

Pialkowska noted, "Short-term interest rates are 4.5 percentage points higher than 18 months ago," and "As money returns to its home country, gradual and sustained demand for the euro is expected."

Meanwhile, RBC Asset Management also forecasted that the yen will rise next year. With continued dollar weakness and a potential pivot by the Bank of Japan (BOJ), the dollar-yen rate is expected to rise from the current 142.96 yen to around 130 yen.

This content was produced with the assistance of AI translation services.