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EUR/USD: Risks tilted toward a larger decline – Wells Fargo

Analysts at Wells Fargo forecast a period of extended weakness for the EUR, with risks tilted to the downside. They see EUR/USD trading at 1.0800 by the end of the third quarter.

Key Quotes:
“We forecast a period of extended euro weakness; however, the risks are potentially tilted toward a larger decline than we currently expect.”

“Growth slowed significantly in late 2021, and we expect a relatively gradual rebound in growth from early 2022. However, with higher energy prices likely to weigh on consumer purchasing power and given possible Ukraine uncertainties, Eurozone economic growth could be even more sluggish than we expect.”

“Eurozone inflation has surprised to the upside, although the rise in core inflation has been less marked to date. Were Ukraine uncertainties to intensify, it is possible the ECB could move more gradually to less accommodative policy than we currently forecast, which should weigh on the euro. Should these risks transpire, the euro could soften more than we currently forecast, with the EUR/USD exchange rate perhaps falling as low as $1.0000.”

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