Euro Rate Today: Forecast for Lower EUR Exchange Rate in 2014 Remains Intact at Bank of America

The euro dollar rate has been heading lower since the ECB rate cut in early June, however following a less-than-hawkish FOMC minutes released mid-month dollar weakness has allowed the euro a recovery.

In mid-week trade the following euro exchange rates are on offer:

• The euro to dollar exchange rate (EUR/USD) is 0.04 pct higher on a day-to-day to basis at 1.3613.
• The euro to pound exchange rate (EUR/GBP) is 0.21 pct higher at 0.8028.
• The euro to Australian dollar rate (EUR/AUD) is 0.07 pct higher at 1.4537.

Please be aware that the above mid-market quotes are subject to a discretionary spread levied by your bank. An independent FX provider will however seek to undercut your bank's offer and in some instances can deliver up to 5% more currency on execution. To learn more, please read here.

2014 forecast for lower euro, higher dollar

The latest currency forecast at Bank of America Merrill Lynch Global Research has had to account for an under-performing USD thus far in 2014.

However, analysts are confident the move higher will eventual start once again:

"We continue to look for lower EUR-USD & higher USD-JPY in 2014, on the back of a sustained US recovery.

"However, we recently modified our expectations to reflect the lower USD YTD. The USD continues to be range bound with Treasury yields failing to break higher.

"As a result, we see a diminished likelihood of a significant near-term USD rally.

"But, we still see the risks in our outlook to the upside believing stronger growth and continued upside employment surprises could lead to higher inflation, which would imply a faster, USD-positive reduction in Fed stimulus."

US Federal Reserve undermines the USD bulls

June had been rather kind to the USD until the 18th.

As expected, the Fed kept on tapering its monetary stimulus at a $10 bn thanks to the persistent decline in unemployment.

But, why did the dollar exchange rate slump? According to Swissquote Research, "the hawkish bias implied by the FOMC forecasts was eclipsed by the dovish comments of Fed Chair Yellen during the press conference.

"By qualifying the recent rise in inflation as "noise"and by backing away from her six months estimate for the "considerable time" Fed funds would stay unchanged after the end of the tapering process, Yellen showed no hurry to start hiking rates."

Analysts reckon that as tapering should be over close to the end of the year, Yellen's comments imply that June 2015 is the earliest time window for a potential raise in rates.

The short-term effect of Yellen's speech should act as a drag for the US dollar.

"However, even if the Euro could strengthen temporarily against the greenback, the strength in British pound looks more sustainable as the Bank of England will likely be the first major central bank to raise rate," say Swissquote.