Alaric Securities celebrates at Nasdaq MarketSite
March 29, 2023 | Issue 19

EUR/USD Forecast: Is the Euro Finally Out of the Woods?

Nikolay Stoykov
Managing Partner at Alaric Securities

They say that a picture tells a thousand words, so let’s start with a 10-year price history of EUR/USD:

As you can see from the chart above, over the last ten years, this currency pair has moved quite a bit! The range is between 1.40 EUR/USD, reached in 2014, and 0.95 EUR/USD, acquired in late 2022.

The average rate for this currency pair during the period was around 1.187 EUR/USD. Of course, this is a very simplistic analysis that, in most circumstances, would be pretty naïve but in this case, we think is roughly appropriate because:

  • The US and the Euro Area are two of the largest economies of the world;
  • Their respective economic cycles are interconnected;
  • ECB and the Fed coordinate their actions and, especially over the last decade, conduct similar monetary policy;
  • Trade between the two economies is mainly free, and capital moves freely between them.

We can see this evidence in both EUR and USD historical short-term rates. We have chosen to look at 1-month LIBOR and 3-month EURIBOR rates. The pair may look like an odd choice to you at first, but there is a reason for this selection which will become evident later on.

Jan 2023 4.401% 2.160% 1.085
Jan 2022 0.104% -0.570% 1.115
Jan 2021 0.140% -0.550% 1.212
Jan 2020 1.734% -0.379% 1,12
Jan 2019 2.507% -0.310% 1.149
Jan 2018 1.561% -0.330% 1.241
Jan 2017 0.773% -0.318% 1.071
Jan 2016 0.422% -0.130% 1.094
Jan 2015 0.167% 0.076% 1.134
Jan 2014 0.168% 0.284% 1.356
Jan 2013 0.201% 0.188% 1.357
Jan 2012 0.290% 1.343% 1.314
Average 1.039% 0.122% 1.187

As mentioned, monetary policy in both economies has very similar dynamics. On average, rates in USD are about 1% higher than those in EUR. This is not true all the time but it tends to be true on average.

What Markets Expect for the Future

Let’s now look into what the market expects for the future – this is why we specifically selected 1-month LIBOR and 3-month EURIBOR, because there are active future contracts for both instruments. Here is what they predict:

Apr 2023 5.18% 3.18% 2.00%
May 2023 5.14% 3.31% 1.83%
Jun 2023 5.12% 3.45% 1.67%
Sep 2023 4.71% 3.55% 1.16%
Dec 2023 4.43% 3.43% 1.00%
Mar 2024 4.04% 3.28% 0.76%
Jun 2024 3.69% 3.14% 0.55%
Sep 2024 3.45% 3.01% 0.44%
Dec 2024 3.33% 2.92% 0.41%

After the bankruptcy of SVB and Signature Bank, the market is convinced that the rate hike in March 2023 was the last hike for a while in the US. Markets expect the Fed to start lowering rates in the summer of 2023, and by the summer of 2024, rates are expected to be about 1.50% LOWER than where they are now.

Even though Europe also got a bank crisis on its hands, Credit Suisse, that bank is outside the ECB jurisdiction and the markets predict that the ECB will CONTINUE to raise rates into the summer (while the Fed is expected to ease) by 25-50 bps.

By June 2024, markets expect the differential between 1-month LIBOR and 3-month EURIBOR to be only 0.50%, well below its long-term average! If they turn out to be true, those market expectations are very BULLISH for EUR/USD. The dovish Fed and hawkish ECB can potentially drive the EUR/USD pair to levels ABOVE its long-term average of 1.187. Given the historical volatility of the pair, it is NOT unreasonable to expect to see levels of 1.25-1.30 in EUR/USD by the end of 2024.


Yahoo Finance

3 months Euribor rate 

1 month US Dollar LIBOR interest rate

ICE Futures Europe | Three Month Euribor ® Futures

Eurodollar Futures and Options – CME Group


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