Bank of America Predicts USD Downside as Federal Reserve Begins Rate-Cutting Cycle - EUR/USD Forecasted to Rise to 1.17 by 2025
In a recent note dated Sept. 26, analysts at Bank of America Securities announced their expectations for a modest decline in the US dollar as the Federal Reserve initiates a series of rate cuts. Despite a surprise 50 bps cut last week, the bank maintains their outlook for the EUR/USD to continue climbing, with a forecast of 1.12 by the end of 2024 and 1.17 by the end of 2025.
The bank believes that the US dollar is currently overvalued, but anticipates that the Fed's rate-cutting measures will help to alleviate this overvaluation over the medium term. Factors such as disinflationary trends and a weakening labor market are expected to support the Fed in implementing further rate reductions, with another 50 bps cut predicted for their November meeting and a 25 bps reduction in December.
At 10:00 ET (14:00 GMT), EUR/USD was trading 0.1% higher at 1.1142, marking a 1% increase year-to-date.
Analysis:
For investors and individuals involved in foreign exchange trading, Bank of America's forecast of a weakening US dollar and a strengthening EUR/USD could present both risks and opportunities. A declining USD may impact the purchasing power of US consumers and businesses, potentially leading to higher import prices and inflation. On the other hand, a rising EUR/USD could benefit exporters and investors holding assets denominated in euros. It is important for individuals to stay informed about these developments and consider how they may affect their financial decisions in the coming years.