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As a result of improved fiscal progress and with COVID-19 suppressed, the euro has appreciated by 5% against the US dollar in the last month. EUR/USD should see further gains to end-2021 on global recovery, accordingly, economists at Westpac forecast the pair at 1.23 by end-2021.

Key quotes

“The agreement reached by European lawmakers in late July to extend centrally funded grants and loans to individual Euro-area countries is seen as a game changer by markets with respect to both political cooperation and joint economic progress across Europe. 

“This Euro move seems sustainable. Unless proven otherwise, we have to assume that the agreed policies will receive the approvals necessary by year end, and thereafter that the funds will make an array of projects possible across the continent, providing sustained gains for activity and employment.”

“With the balance of short-term risks skewed against the US, a further move higher for EUR/USD into early-2021 seems probable. Our baseline view calls for a modest move to around 1.20, though clearly a stronger gain is a distinct possibility. As we look further ahead to end-2021, the global recovery from COVID-19 will also favour the euro over the US dollar, with EUR/USD seen at 1.23 by end-2021 as a result.”