Euro likely to appreciate only gradually, to trade at 1.22 by end-2018 – Lloyds Bank

The euro’s run of six straight months of gains against dollar ended in September. The currency had peaked at 1.2092 in early September; however, it has since eased to about 1.1850, noted Lloyds Bank. The recent moves greatly show renewed strength in the greenback after signs of solid underlying activity in the U.S. economy. Markets shrugged off a 33,000 drop in September nonfarm payrolls, attributed to the hurricane, stated Lloyds Bank. Instead, focus was turned to the decline in jobless rate to a cyclical low of 4.2 percent and the increase in earnings growth to 2.9 percent year-on-year, the most rapid rate since 2009.

Meanwhile, the euro area’s core inflation dropped surprisingly to 1.1 percent year-on-year in September, confirming that the European Central Bank still has some way to go to meet its price stability mandate. The central bank is likely to lower its policy stimulus in 2018, with most of the decisions likely to be announced during its upcoming meeting this week. The ECB is expected to signal a later end date to its asset purchase program that might delay the first interest rate hike to early 2019, said Lloyds Bank.

“We forecast only gradual euro appreciation over the forecast period, with EUR/USD at 1.22 at end-2018 and 1.26 at end-2019”, added Lloyds Bank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -14.5765, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 110.772. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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