JPMorgan, Citi forecast euro to dollar parity by year-end

Citi and JPMorgan see parity for euro to dollar rate by end of 2023

Major Wall Street banks are anticipating a decline in the euro to dollar exchange rate to parity by year-end. The forecasts, highlighted in a recent report by the Financial Times, expect the war in the Middle East to drive up the cost of energy imports in Europe and “higher-for-longer" interest rates in the eurozone to weigh on economic growth. The banks see both factors dealing a blow to the common currency by the end of the year.

JPMorgan has adjusted its prediction for the euro to reach $1 by year-end. Citibank, on the other hand, has set a target for the euro to reach parity "within six months," citing its ongoing outlook of a European recession happening “well ahead of the U.S.”

These forecasts position the major U.S. banks at the forefront of a growing trend among lenders, as they foresee the euro's steady decline since the summer extending further.

The euro is currently trading at $1.0550, and it has already experienced a decrease of approximately 6% against the U.S. dollar since its peak in mid-July, as the surprising resilience of the U.S. economy has boosted the dollar’s strength, while the eurozone braces for an economic downturn.

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Euro forecast: U.S. exceptionalism, stagnant eurozone may lead EURUSD to parity

Despite recent weakness, the euro is “still not incorporating a discount for the myriad of uncertainties the currency faces”, Meera Chandan, co-head of the global FX strategy research team at JPMorgan, told the Financial Times, citing “tighter financial conditions and potential geopolitical spillover risks, all of which come amid stagnant growth”.

“We now expect EUR/USD to test parity, down from our previous target of 1.05,” she added.

Yasmin Younes, a strategist at Citi, said:

“We think the US dollar can go further on US exceptionalism, which we find incongruous with a tightening labour market.”

In their euro to dollar forecast, economists at the National Bank of Canada were in broad alignment with Citi and JPMorgan’s outlook, writing that current EUR weakness could intensify. Although it agreed with the euro’s vulnerability, the forecast, cited by the FXStreet Insights Team, stopped short of projecting parity for EURUSD, and expected a reversal by the end of next year:

“A combination of a less hawkish central bank, weaker economic indicators and deteriorating market conditions have certainly played their part in the last two months.

Combining our call for continued US Dollar strength and with economic conditions worsening in the Eurozone, we hold the view that the current Euro weakness could intensify. That said, we do see some improvement further out in our forecast horizon.

EUR/USD – Q4 2023 1.04 Q1 2024 1.03 Q2 2024 1.07 Q3 2024 1.08.”

At the time of writing, EURUSD was trading at $1.0552 (down 0.09% on the day), as per MarketWatch data. The DXY dollar index traded around 106.5, after gaining close to 0.2% on stronger-than-expected retail sales figures in the U.S.