Euro Vulnerable To Slide Below 1.05 Vs Dollar, Pound Risks 1.20 Say SocGen

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Euro Vulnerable to Slide Below 1.05 vs Dollar

Unless the US data flow deteriorates quickly, SocGen’s Kit Juckes expects the dollar will strengthen further against the Euro, especially if there is further speculation over no Federal Reserve interest rate cuts this year.

The Euro to Dollar (EUR/USD) exchange rate has already hit 5-month lows close to 1.06 and he sees a growing risk of a slide below 1.05.

He also considers that the Pound to Dollar (GBP/USD) exchange rate is vulnerable to a test of 1.20.

SocGen notes that the US growth and inflation data release have been stronger than expected during April.

Expectations of March and May Federal Reserve rate cuts had already been abandoned and June is now seen as very unlikely.

Forthcoming US data releases will inevitably be crucial, but the bank thinks that notably weaker data will be needed to revive expectations of near-term rate cuts.

Overall, SocGen considers that yield spreads can widen further, especially with increased confidence that there will be near-term ECB rate cuts.

In this environment, it expects that the Euro will weaken further, especially if there is increased speculation that there will be no Fed rate cuts in 2024.

A stronger dollar will also tend to put downward pressure on the Pound

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Key Quotes:

“We raise our growth forecast, and now expect a 0.4% quarter-to-quarter GDP gain in Q1.”

“Returning growth won’t stop the MPC cutting rates but will keep it to a one-cut-per-quarter pace.”

“The MPC switching to scenarios, from fan charts, post Bernanke Review likely matters little to markets.”

“Economy has already recovered the ground lost during last year’s recession.”

“Manufacturing and services output both rose month-to-month in February, and within those sectors, the recovery was widespread.”

“Admittedly, manufacturing is unlikely to keep growing at the stellar rate seen in February.”

“Consumer services output fell 0.1% month-to-month as accommodation & food services activity fell.”

“Bernanke’s review misses an opportunity.”

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