Euro Dollar Rate Forecasts for 2015 See EUR/USD at 1.07

Above, ECB President Mario Draghi image © Pound Sterling Live 2015

The euro dollar exchange rate could well fall to 1.07 by the time 2015 has played out.

A set of forecasts on the EUR/USD for 2014-2015 warns of significant weakness ahead with Barclays reckoning the conversion rate of 1.07 is achievable.

Analyst expectations from big names RBS, HSBC, Nomura and Morgan Stanley also confirm the euro will plumb fresh lows in the coming 12 months.

For reference, the euro to dollar exchange rate (EUR/USD) is quoted as being at 1.1465 at the time of writing.

A fresh leg lower in early 2015 was prompted following the announcement of a programme of sovereign bond buying at the ECB.

At the current time it looks as though most 2015 predictions will be achieved well before the end of the first quarter. However, the potential for a recovery rally from heavily oversold levels could well slow the shared currency's decline.

• Be aware that all our quoted exchange rates are subject to a discretionary spread by your bank, it can differ significantly from the market rate. If you are looking to make international payments we suggest being quoted by an independent provider. By tapping the wholesale markets they can offer up to 5% more currency in some instances. Find out how.
• If you missed the week's best rates it is worth remembering that there are ways to automatically take advantage of positive FX moves while avoiding negative moves by ensuring the correct risk controls are in place, learn more.

Draghi Drives the Long-Term Agenda

The European Central Bank (ECB) has just announced that it is adopting a quantitative easing (QE) programme. The ECB will commit to purchasing €60bn worth of public and private assets monthly.

It is hoped that the move will help to boost inflation levels close to the ECB’s 2% target.

The programme is expected to finish at the end of September 2016.

Banks Forecast Losses for the Euro Longer-Term

Looking at the euro dollar exchange rate outlook we note the banks, as shown in the table below, are pricing in steep losses for the shared currency.

As we can see the most negative prediction for a euro dollar rate at 1.07 by year-end is made by Barclays. From where we are sitting this looks to be the most sensible.

The median prediction is for a rate of 1.15 - again, this is looking too optimistic in our view.

“There is still a two-speed Eurozone when it comes to their economies, but the problem is that the northern states are now either growing very slowly or stagnating – France is a prime example,” says a note from Danske Bank.

There has also been a lack of change in the employment framework and the need for flexibility and reduced costs.

Danske say:

“It therefore comes as no surprise that the universal view of the banks is that the euro will weaken against sterling and the US dollar over the next twelve months.

“It is still very difficult to know when the major movements will be, but the most likely drivers will be when the suggested QE for the Eurozone is formalised and/or when interest rates are raised in the UK and/or the US.”

The QE Battleship Sets the Path Towards Significant Euro Weakness

Tom Elliott, International Investment Strategist at deVere Group observes:

“The ECB has added its newest €60 billion a month battleship to the currency wars, which only the U.S. and Swiss stay aloof from. It is a larger-than-expected quantitative easing (QE) program, designed to inflict shock and awe on markets.

“Its goal is to severely weaken the euro and so spur exports and boost imported inflation. Let’s not pretend it will boost eurozone lending, while the bank sector remains so weak.

“But while this will boost eurozone stocks, by weakening the euro, investors should regard QE with mixed feelings. Capital markets are in a curious and unstable mode thanks to QE from other central banks that has pushed up all asset prices in recent years with little discrimination over quality.”