Deutsche Bank Expects EUR/USD to Hold Range, Reaffirms 1.17 Year-End Target

Deutsche Bank is maintaining its year-end forecast for the EUR/USD exchange rate at 1.17, arguing that the currency pair is unlikely to break below its current support levels despite trading near the bottom of its annual range.

In a recent analyst note, the bank stated its conviction that the euro will hold within its 1.13 to 1.20 range for the year, citing several macroeconomic factors that should provide a floor for the currency.

Resilient Global Growth to Buoy Euro

Analysts at Deutsche Bank point to resilient global economic growth as the primary factor counteracting U.S. dollar strength. The bank highlighted several positive data points and trends supporting this view:

• Strong capital expenditures in high-growth sectors like artificial intelligence.
• Upward revisions to the UK's GDP, driven by increased IT spending.
• A recent interest rate hike by the Reserve Bank of Australia, prompted by domestic economic strength.
• Additional stimulus measures announced by China.
• European PMI data indicating above-trend GDP growth.

Collectively, these developments have pushed the global economic data surprise index to a yearly high, signaling that growth is outperforming expectations and limiting the dollar's upside potential.

Fed Rate Hikes Largely Priced In

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A second key factor is the view that the market has already fully priced in the U.S. Federal Reserve's peak interest rate. The bank noted that recent comments from New York Fed President John Williams have helped cool expectations of further consecutive rate hikes.

Even if U.S. rates were to rise further, Deutsche Bank suggests it would more likely stem from an increase in the term premium—the extra yield investors demand for holding longer-term bonds. The bank's analysis indicates that, historically, a rising term premium has not been supportive of the U.S. dollar.

Energy Shocks and Outlook

Finally, the bank's strategists believe the market has largely absorbed the impact of recent energy price shocks, with risks now skewed toward improvement. They noted that Middle East oil supply is gradually normalizing, which aligns with their forecast for oil prices to return to around $90 per barrel by the end of the year.

Based on these factors, Deutsche Bank's foreign exchange blueprint reaffirms its stance. The bank does not expect the EUR/USD to breach the lower end of its established range and maintains its target of 1.17 for the end of the year.