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The Euro was one of 2023's better-performing currencies, having only lost ground to fellow European currencies from Switzerland, the UK and Sweden.

The outperformance of the European basket is likely a result of the paring of the incredibly negative sentiment that characterised 2022 as the risks relating to gas supply faded.

Yet, the year ends on something of a damp note, with underperformance being recorded against the majority of the G10 as investors ramp up expectations for European Central Bank (ECB) bets in the face of falling Eurozone inflation and a protracted period of poor economic performance.

2024 will all be about the timing and scale of interest rate cuts at the world's central banks, with the currencies belonging to the early and aggressive cutters likely to fare the worst.

Your outlook on the Euro in 2024, therefore, depends on where you place the ECB on this spectrum.

Above: EURUSD performance in 2023.

Strategists at Morgan Stanley are short Euro-Dollar in 2024, seeing a technical recession in the eurozone, with the ECB, Sweden and the UK leading the central bank cutting cycle. "Uncompelling growth and falling rates weigh on these currencies, with EUR/USD returning to parity by 1Q24 and staying around the 1.00 level for most of the year," says Morgan Stanley.

This forecast pits Morgan Stanley against the consensus that sees Euro-Dollar gradually rising over the coming months.

According to a year-ahead outlook briefing from one of Scandinavia's biggest banks, the Euro to Dollar exchange rate can rise to 1.11 before a multi-month decline sets in.

"Look to buy on dips in the near-term," says Stefan Mellin, Chief Analyst for FX Strategy at Danske Bank. "In the near term, we still see good opportunities for USD weakness on the back of the considerable easing of financial conditions over the past month, in conjunction with bearish USD year-end seasonality."

But, "looking further ahead, it looks like European investors will still have to pay to hedge their USD FX exposure next year, although the cost has fallen and may fall further next year on the Fed cutting policy rates first," says Mellin.

Danske Bank is strategically bearish EUR/USD and looks for the pair to fall to 1.10 in three months, 1.07 in six months and 1.05 in twelve months.

Regarding the Euro-Pound exchange rate, Danske says inflation in the UK is not set to develop materially different than for peers, and hence the Bank of England cutting cycle will not be substantially different.

Danske targets a rise in EUR/GBP to 0.89 in 6-12M.

Above: Market expectations for ECB rate cuts are particularly steep, and have been falling in December, resulting in EUR weakness. The question is, how much further can this realistically fall?

HSBC's projections show Euro-Dollar will trend lower as the Federal Reserve and other central banks may not be able to loosen monetary policy as much as markets are thinking.

As a result, HSBC warns there has been a lot of optimism expressed by markets already, and the hurdles for this to be upheld are even higher now.

"A number of scenarios, including a potential US soft landing, still point to a strong USD, but only a global soft landing delivers a clear dollar bear case," says Daragh Maher, Head of Research for the Americas at HSBC.

HSBC forecasts Euro-Dollar at 1.06 by the end of the first quarter of 2024, below the current level of spot at 1.0950, 1.04 by mid-2024, 1.02 by the end of the third quarter and 1.02 by year-end.

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But its steady gains for the Euro-Dollar in 2024 predict Europe's largest asset manager, Amundi.

In a year-ahead outlook note, Amundi says the mild U.S. recession - a base case expectation for H1 2024 - may not be as positive for the USD as in the past.

Amundi forecasts Euro-Dollar at 1.09 by mid-year, in line with the consensus forecast of 1.09, ahead of 1.15 by the end of 2024, which puts them above consensus at 1.11.

A sizeable risk to those betting against the Euro in 2024 will be a stubborn ECB that refuses to meet market expectations and cut interest rates.

HSBC's European economists see wage pressures remaining too high for the ECB to consider cutting rates until towards the end of 2024.

Above: Above: "Negotiated pay is still rising" - HSBC.

Crédit Agricole, the French banking giant, says Eurozone inflation will remain above 2.4% until the end of 2025 and does not expect a recession in the Eurozone.

"In this context, we believe that the ECB will have to remain hawkish for most of 2024," says Crédit Agricole. "We think the first rate cut will take place in September 2024".

This is well behind market expectations and poses notable upside risks to the Euro, if correct.

That said, Crédit Agricole's in-house FX forecasts show a relatively benign path for the Euro, with EURUSD at 1.07 by midyear and 1.05 by year-end. For EUR/GBP it is 0.85 and 0.84.