– Written by
Tim Boyer
STORY LINK Euro to Dollar Forecast: Oil and Gas Prices Drive EUR Sell-Off
The Euro to Dollar exchange rate (EUR/USD) dropped to two-month lows near 1.1550 as surging energy prices and escalating tensions involving Iran weighed heavily on the Euro.
With LNG shipments from Qatar disrupted and shipping through the Strait of Hormuz under threat, investors have reassessed the vulnerability of energy-dependent economies, leaving the Euro exposed while the US dollar benefits from safe-haven demand and America’s relative energy independence.
EUR/USD Forecasts: EUR energy hit
ING expects the Euro to Dollar (EUR/USD) exchange rate will remain vulnerable in the near before rallying again later in the year.
According to the bank; “EUR/USD could be ending March somewhere near 1.15/16. Assuming that conditions calm, eurozone growth comes in as planned and the Fed can cut rates twice in the second half, we then look for EUR/USD to still push up to the 1.22 area by year-end.”
The Euro was subjected to notable selling during the week as the Middle East conflict dominated. The US and Israeli strikes on Iran and retaliation by Iran triggered a surge in energy prices as LNG shipments from Qatar were disrupted while moves through the Straits of Hormuz declined sharply.
EUR/USD dipped sharply to 2-month lows at 1.1550 with a rally on a weak US jobs report fading quickly.
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According to Credit Agricole; “We believe that it is premature to expect a quick resolution to the
US-Iran conflict and worry that the latest risk rally could be vulnerable to further escalation of the conflict in the near term.”
It added; “we believe that EUR/USD could be vulnerable to any re-escalation of the US-Iran conflict and/or positive data surprises out of the US that could burnish the appeal of the USD as
a high-yielding safe haven.”
According to Natixis; “The pair is expected to trade between 1.15 and 1.17 in the coming weeks, with a downside risk to 1.14 in case of escalation (Brent at $100/b).”
MUFG sees the risk of EUR/USD dipping below 1.15; “TTF natural gas has surged nearly 50% in response and if extended or sustained, will add to euro downside pressure. In February 2022 when Russia invaded Ukraine, the initial EUR/USD selling was contained but this quickly changed and ultimately EUR/USD fell from 1.1200 to 0.9500.”
It still expects fresh EUR/USD gains later in the year.
ING also noted risks to the trade outlook; “Investors recall how in 2022, the higher cost of energy imports saw the eurozone monthly trade account swing to a near €50bn deficit by the late summer. US energy independence is being rewarded, while the fossil fuel importers of Europe and Asia are punished.”
UBS remains uneasy over US fundamentals; “Ambiguity around future trade policy—including the recent Supreme Court ruling deeming IEEPA‐based tariffs unlawful—and uncertainty regarding the next Federal Reserve chair have weighed on sentiment. With global investors already holding elevated USD allocations after years of outperformance, appetite to further increase exposure is limited amid the current political backdrop.”
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TAGS: Euro Dollar Forecasts
