EUR/USD likely to appreciate modestly to 1.16 by mid-2018, says Lloyds Bank

So far in 2017, the euro has been the best-performing G10 currency, appreciating more than 8 percent against the U.S. dollar, noted Lloyds Bank in a research report. Robust economic data in Europe, constructive results in the French elections and a generally weaker U.S. dollar have supported the move. The euro has also gained from a mild shift in stance from the ECB.

During its June meeting, the European Central Bank removed reference to the likelihood of “lower levels” of interest rates in its forward guidance and hiked its assessment of economic growth. Moreover, a number of Governing Council members, including President Draghi, have struck a less ‘dovish’ tone in recent speeches, stated Lloyds Bank.

Meanwhile, despite May’s weak U.S. inflation data, the U.S. Fed continued with its path of interest rate normalization, hiking the Fed funds rate by further 25 basis points during its June policy meeting. The FOMC is expected to further hike rates this year.

This, along with rising elevated EUR positioning, implies there is scope for a moderate pullback in the short-term. But given the euro area monetary policy outlook is looking less one-sided and longer-term estimates of ‘fair value’ imply the euro should be strong, the EUR/USD pair is expected to appreciate modestly to 1.16 by the mid of 2018, added Lloyds Bank.

At 23:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bullish at 126.626, while the FxWirePro's Hourly Strength Index US Dollar was neutral at -51.1097. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest