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The euro began February with some weakness after touching a 32-month high of 1.23 just a month earlier. Economists at the National Bank of Canada see the EUR/USD pair trading in a range of 1.23-1.25 in the second half of the year. This forecast assumes no further European Central Bank (ECB) rate cuts. 

Key quotes

“The latest report on 12-month headline inflation in the Eurozone showed it at 0.9%, up significantly from the -0.3% of December. Although likely to be transitory, this spike could alleviate concern about deflationary pressure coming from the exchange rate.” 

“The euro is likely to be weaker in the first quarter of the year given weakening of the global economy (broad-based USD increase) and statements made by central bankers.”

“We expect some euro appreciation going into the second and third quarters of 2021 due to economic rebound (think: end of second-wave, vaccines, etc.). All in all, we see the euro trading in a range of 1.23-1.25 in the second half of the year. This forecast assumes no further ECB rate cuts.”