EUR/USD likely to trade at 1.17 by end-2017 and 1.22 by end-2018 – Lloyds Bank

The euro appreciated for the sixth straight month in August against the U.S. dollar and reached 1.2092 in early September after only mild warnings from ECB President Draghi about its strength, noted Lloyds Bank. Draghi stated that recent exchange rate volatility “requires monitoring”, but the resilience of the economy was clear in the ECB’s updated projections that indicated an upward revision to this year’s GDP growth and just marginal downgrades to its medium-term inflation forecasts.

However, the European Central Bank is growing more concerned about the exchange rate, even if part of the recent rise shows stronger economic fundamentals. On the dollar front, after recent weak inflation outturns and the possible short-term hurricane hit to growth, the Fed is now expected to delay its rate rise to the first quarter of 2018, stated Lloyds Bank.

“On balance, we maintain our end-2017 and end-2018 EUR/USD targets at 1.17 and 1.22, respectively”, added Lloyds Bank.

This implies scope for a neat-term correction in the euro, based on our exception that the ECB would announce just a gradual withdrawal of policy stimulus next year and the maintenance of its policy sequencing, namely that interest rates are unlikely to rise until after the end of its quantitative easing program.

At 22:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -1.02006, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 27.1901. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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