Alaric Securities celebrates at Nasdaq MarketSite
September 20, 2023 | Issue 39

EURUSD Forecast: The Road to 1.20 Level and Beyond

Nikolay Stoykov
Managing Partner at Alaric Securities
Illustration of racing cars representing the EUR/USD currency pair's journey in terms of EURUSD Forecast

In this EURUSD Forecast September 2023, we revisit our prior examination, initially discussed in the article EURUSD Forecast: Is the EUR finally out of the Woods?

Our earlier assessment provided insights suggesting that the Euro (EUR) may present an attractive buying opportunity against the United States Dollar (USD). However, given the significant shifts in interest rate expectations for both EUR and USD in the years 2023 and 2024, it is essential to conduct a fresh evaluation of the situation.

Before we proceed with our current analysis, let’s emphasize why the EURUSD currency pair is so important in the global financial landscape, especially as we revisit this topic consistently.

The EURUSD pair is one of the most extensively traded and closely monitored currency pairs globally. Its liquidity, economic ramifications, and function as a barometer of sentiment within the Eurozone and the United States amplify its fundamental relevance. Traders, investors, and businesses rely on this pair as a critical instrument for risk management and a valuable source of insights to facilitate informed financial decision-making.

Historical EUR/USD Trends

Let’s look at a 10-year history of 3-month Euribor rates in EUR, 3-month LIBOR USD rates, and EURUSD spot prices. This historical data will help us understand how this currency pair has behaved over the past decade.

Date 3-month LIBOR Rates 3-month Euribor Rate Difference (LIBOR-Euribor) EURUSD
2014-01-01 0,24% 0,28% -0,04% 1,38
2015-01-01 0,26% 0,08% 0,18% 1,22
2016-01-01 0,62% -0,13% 0,75% 1,09
2017-01-01 0,99% -0,32% 1,31% 1,06
2018-01-01 1,69% -0,33% 2,02% 1,19
2019-01-01 2,79% -0,31% 3,10% 1,14
2020-01-01 1,90% -0,38% 2,28% 1,12
2021-01-01 0,24% -0,55% 0,79% 1,23
2022-01-01 0,22% -0,57% 0,79% 1,13
2023-01-01 4,78% 2,16% 2,62% 1,06
Average 1,38% 1,16

As you can see from the table, over the last ten years, the difference between 3-month Euribor rates and 3-month USD LIBOR rates have averaged 1,38% (USD with higher rates) while the average in spot price EURUSD has been around 1,16.

Interest Rate Trends’ Impact on EURUSD

It does appear that what they say in the financial textbook about currency valuations is true – the primary driver in currencies seems to be interest rate differentials; as you can see over the long run, when interest rate differentials increase, EURUSD spot prices also increase. When the interest rate differentials decrease – the opposite is true: EURUSD spot prices drop.

 EURUSD Forecast September 23: Future Outlook

But let’s shift our attention to the present circumstances. To gain insight into what lies ahead, we must focus on the futures markets and examine the trends and indicators they provide for the future.

Date 3 Mo SOFR Futures 3 Mo Euribor Futures Difference (SOFR-Euribor)
Dec 23 5,45% 4,02% 1,43%
Mar 24 5,35% 3,98% 1,37%
Jun 24 5,13% 3,84% 1,29%
Sep 24 4,87% 3,66% 1,21%
Dec 24 4,49% 3,41% 1,08%
Mar 25 4,20% 3,25% 0,95%
Jun 25 4% 3,13% 0,87%
Sep 25 3,89% 3,05% 0,84%
Dec 25 3,85% 3% 0,85%

Since our last analysis of the EURUSD Forecast March 2023, expectations for interest rate decreases have moved further into the future by roughly 6-12 months for both EUR and USD. However, the markets seem to strongly believe that USD rates will decrease more than those in EUR. So much so that by December 2025, the rate differential between the 3-month SOFR rate and the 3-month Euribor rate is expected to be only 0.85%.

Given that the 10-year average interest rate differential is 1,38% and the 10-year average level of EURUSD is 1,16, we expect EUR to appreciate vs. USD. Given that the rate differential will be significantly below its historical average, we expect EUR/USD to reach a level considerably higher than its average – we certainly expect to see 1,20 and higher levels by the end of 2025.


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