The Euro to Dollar (EUR/USD) exchange rate dropped to a 6-week low below 1.0700 last week due to concerns over French politics, before bouncing back to 1.0720. Danske Bank believes that there are risks for both the Euro and the dollar in the coming month, but overall fundamentals suggest a downward trend for the second half of 2024.
Political uncertainties surrounding the upcoming French parliamentary elections are a key factor affecting the Euro. Without these risks, Danske predicts that the EUR/USD rate would be around 1.09. The market is expected to react to French news leading up to the elections on June 30th and July 7th, with a Macron victory seen as positive for the Euro and a National Rally win likely to negatively impact the currency.
On the dollar front, economic concerns are currently prominent. Danske highlights that high interest rates are causing damage in some sectors of the economy, although recent inflation data has been more encouraging. The prediction is that the Federal Reserve will cut interest rates in September, with the possibility of a move in July not being ruled out. Furthermore, a further rate cut is expected in December, followed by four more reductions in 2025, which will limit support for the dollar’s yield.