Economists at ING analyze EUR/USD outlook for the next year.
EUR/USD currently contains a 2% risk premium
Our calculations point to EUR/USD still heading up towards the 1.18 area in the second half of 2024 based solely on our house calls for the Fed and European Central Bank policy trajectories. Yet, as we have seen repeatedly, policy rate differentials are not the sole driver of EUR/USD.
Currently, we estimate that EUR/USD contains a 2% risk premium – a risk premium that can extend to 6% during times of extreme stress in the Eurozone.
A low growth environment in the Eurozone and political uncertainty over the re-introduction of the Stability and Growth Pact will keep that risk premium in the Euro and means that EUR/USD ends this year near 1.06 and that its best levels of 2024 may be closer to 1.15 rather than 1.18.
Source: https://www.fxstreet.com/news/eur-usd-best-levels-of-2024-may-be-closer-to-115-rather-than-118-ing-202310061345