Euro Forecasts at MS Confirm EUR/USD Parity in 2016, EUR/GBP to Fall to 0.68

The euro to dollar exchange rate is forecast to fall to parity, but those betting on the fall may have to wait until late 2016 warn Morgan Stanley.

The euro exchange rate complex is on the front-foot at the time of writing with the euro dollar rate seen on an approach to 1.15 and the euro to pound sterling exchange rate at 0.7278.

The euro is however likely to trade gradually lower against both the dollar and pound in the longer-term – good news for those with large euro currency transfers who have the luxury of time on their side.

“We remain bearish on EUR over the medium term but see reason for some support in the near term. EURUSD has been supported in the immediate aftermath of the Fed’s decision to keep rates on hold, benefiting from its inverse relationship with risk appetite,” says a note from Morgan Stanley in FX note released on the 18th of September.

Eventually, analysts say they believe the effects of ECB policy and other bearish factors will push EUR lower, but Morgan Stanley are not maintaining any shorts in their portfolio reflecting the uncertainty of the timing of the next big push lower.

At present we are seeing strong euro exchange rates with the EURGBP and EURUSD knocking on the door of intra-month highs.

With regards to the pound sterling exchange rate trajectory the US investment bank say they only expect the Bank of England to raise interest rates in the first quarter of 2016 – broadly in line with where currency markets are pricing the UK unit at the present time.

Only when the starting gun on the interest rate raising cycle is fired will we likely see the British pound gain significant upside traction.

Despite the strong data seen in September we note analysts and markets are unwilling to push the British pound substantially higher.

In essence there is a belief that the BoE will not act before the US Federal Reserve.

As such news that the FOMC is looking to delay interest rate rises until 2016 justifies the 0.25 basis point rise around March 2016.

Latest Pound/Euro Exchange Rates

	Live: 1.1452▲ + 0.08% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1063 - 1.1108
**Independent Specialist	1.1292 - 1.1337 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

The dollar is meanwhile still favoured to outperform rivals in the longer-term – a scenario that will allow the EURUSD to fall lower.

“Our structurally bullish USD view has never been Fed-focused. Rather, our framework is built on the reduced investment attractiveness in much of the rest of the world. EM overcapacity, deleveraging and competitiveness concerns remain,” says Morgan Stanley’s Ian Stannard.

“That the FOMC stated global developments as a primary justification to wait longer shows just how challenged the outlook is for much of G10 and EM. The ‘Great Repatriation’ of US private sector investment should continue, in our view, underpinning USD over the medium term,” says Stannard.

Euro Forecasts from Morgan Stanley

The euro to pound sterling exchange rate is forecast to reach 0.73 by end of 2015, 0.73 by March and 0.71 by the middle of 2016. This moves to 0.68 by the end of 2016.

It is worth noting that these levels are notably higher than the levels predicted by Morgan Stanley in mid-2015 suggesting a number of euro upgrades have been initiated.

Looking at the euro to dollar outlook profile those euro-bears are likely to be disappointed that the promised land of EURUSD parity is only likely to be reached at the end of 2016.