EUR/USD likely to trade around 1.12 by end-2017, says Lloyds Bank

Since the beginning of 2017, the EUR/USD pair has been underpinned by a generally subdued U.S. dollar, stronger euro area economic fata and some waning European political risk. At the beginning of May, the pair reached a six-month high just above 1.10.

In the months ahead, the scope for additional appreciation is expected to be controlled by the prospect of at least one U.S. interest rate rise by the end of this year, noted Lloyds Bank in a research report. But, the continuous rebound in the euro area and the possibility of the ECB adopting a less dovish tone in the second half of 2017 curtails the downside.

In all, the risks are expected to be slightly skewed in favour of euro appreciation, especially if the euro area economic data continues to surprise as they have done in recent months.

“We expect EUR/USD to end the year around 1.12. Fundamental estimates of longer-term fair value for EUR/USD centre around 1.20”, added Lloyds Bank.

However, it might see a sustained rise in ‘core’ euro area inflation, continued signs of economic rebound and a narrowing in interest rate spreads to push the euro back towards this level, stated Lloyds Bank.