EUR/USD likely to trade around 1.07 by end-2016, drift lower in 2017, says Lloyds Bank

The U.S. dollar had sold off sharply as an immediate response to Donald Trump’s victory. The EUR/USD currency pair rose from about 1.10 to 1.13 in the span of four hours to reach a two-month high, noted Lloyds Bank in a research report. But the move was for a brief period as more conciliatory acceptance speech by the President elect eased market nerves. The longer-term effects of the result for the U.S. economy continue to be unclear at this stage, but the near-term focus for the U.S. dollar has moved back towards the possibility of a U.S. rate hike by the end of 2016, stated Lloyds Bank.

Various Fed officials’ comments have implied that the election result has not changed their views regarding the economy, which has aided the market-implied probability of a December rate hike increase above 90 percent, underpinning a further slide in the EUR/USD below 1.07.

The U.S. Fed continues to be on path to tighten the monetary policy in December, but the ECB is expected to still be in the mind set to ease policy and extend its QE program beyond March 2017. Furthermore, the Italian constitutional referendum to be held on 4 December, along with elections in France and Germany in 2016 continues to be a source of downside risk for the euro, stated Lloyds Bank.

“We expect EUR/USD to end the year around 1.07 and drift lower over the course of 2017”, added Lloyds Bank.