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The Euro to Dollar exchange rate (EUR/USD) is forecast to retreat back below the 1.0 level over coming weeks by analysts at Rabobank, the Dutch based international lender and investment bank.
New analysis suggests the Dollar will likely remain well supported well into 2023, a view that is at odds with those of some analysts who say we are at a turning point as the Dollar's multi-month rally comes to an end.
Supporting this view is the recent consolidation in EUR/USD which had dipped below parity in mid-July but has since recovered and consolidated between 1.01 and 1.03.
"The market will now be looking for fresh direction," says Jane Foley Senior FX Strategist at Rabobank in London. "For this to happen USD strength will likely have to be complemented with another bout of fresh EUR negative news."
~ A tough winter for Europe
~ They see the odds of recession in the Eurozone as strong
~ As the high price of energy is a significant headwind for businesses and consumers
~ A cold winter combined with the possibility that gas through Nord Stream 1 is totally shut off
"We continue to see further downside potential for the EUR on a 1 to 3 month view," says Foley. "Coincidentally, we expect the USD to remain well supported in this period."
~ The Federal Reserve looks set to announce another 75 bps rate hike on September 21
~ This as a result of last week's strong U.S. job market report for July
~ The USD is also likely to find support from safe haven demand
"The USD is the most widely used invoicing currency in the world by a wide margin. This means that a stronger greenback tends to have a depressive impact on trade," says Foley.
Another risk to global growth is slower demand for commodities from China.
"In our view the value of the USD is likely to remain firm until the environment for risky currencies improves. This suggests scope for a firm USD well into 2023," says Foley.
"Although we would expect the EUR/USD 1.01 area to act as solid support going forward, we retain the view that EUR/USD is likely to drop back below parity again on a 1 to 3 month view," she adds.