Bank Expert Euro (EUR) Forecasts for 2021: Slowly Improving

This article looks at the long term trend in the Euro (EUR) forecast in 2021.

Euro EUR USD Bank Forecast

In 2021, most banks forecast the Euro will strengthen against the US Dollar in the second half of the year. However, a severe second wave of coronavirus infections and uncertainty over the political and economic impact could see Euro forecasts change in 2021 and beyond.

Bank experts also anticipate that Britain leaving the Eurozone (Brexit) will be finalised in the first half of next year, which could support the Euro and the Pound.

How does the coronavirus pandemic impact exchange rates?

Uncertainty from the coronavirus pandemic increases volatility in currency markets, including the EUR and GBP. Generally, safe-haven currencies like the USD, CHF and JPY moves higher. However, commodity currencies such as the AUD, NZD, CAD and ZAR exchange rates tend to fall. Banks anticipate the USD will remain relatively weak compared to the Euro particularly in the first half of 2021.

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Euro USD forecast in 2020

Most bank forecasts show the Euro has been weaker than expected in 2020. Banks have frequently had to adjust Euro currency pairs (EUR against other exchange rates) to reflect a falling EUR trend.

Will the Euro get stronger beyond 2021?

Maybe, if the coronavirus pandemic is controlled effectively going forward.

Let's examine 5 reasons the Euro could remain weak at current forecast levels:

Euro EUR USD Bank Forecast
  • Coronavirus pandemic worsens in Eurozone countries and public health systems are unable to deal with the number of people with serious health issues from the virus
  • The US economy picks up, US political risks ease, and the Federal Reserve (central bank) increases interest rates, supporting the USD
  • Slowing European Union economies led by the German economy. Weaker global growth equates to a falling Euro
  • Britain's exit from the EU (Brexit), ongoing uncertainty leads to a weaker Euro rate relative to other currencies (apart from the British Pound)
  • China’s economic growth slows, reducing China trade and lowering demand for European imports

What's the impact of a weak EUR?

A weaker Euro might not be great for citizens of the 19 countries in the Eurozone, especially if they want to move or travel overseas or who are already living abroad in another country. Fortunately, they might be able to transfer money overseas at better rates in the second half of 2021 if bank forecasts are accurate.

If you’re planning to travel abroad a stronger Euro will certainly help you, particularly if you choose a destination with a weaker currency. However, travelling right now isn't a possibility with the current coronavirus pandemic placing many countries into lockdown. Fortunately, in 2021 travel may be possible between countries with an agreed travel bubble.

What are the key influences on future Euro exchange rates?

1. Eurozone Economy

Growth in the 19 Eurozone countries has been weak in 2020. Uncertainty over the coronavirus pandemic in terms of severity has pressured the Euro and the Euro against most crosses. A second wave of the coronavirus in Eurozone countries has also resulted in poor growth predictions, which may negatively impact the Euro in 2021.

Euro EUR USD Bank Forecast

 

2. EU Politics

Many are still unsure whether integrating the economies of 19 countries into one bundle (the Eurozone) including a common currency (Euro) will work. If one country has political issues, it can create uncertainty for the whole Eurozone. Greater uncertainty from politics means investors will sell the Euro, because there is a greater chance of it getting weaker.

3. Other Currencies

The US dollar (USD) has a significant influence on the Euro. Generally, when the USD gets stronger, the Euro is relatively weaker and vice versa. With the USD anticipated to remain weak, the Euro will likely remain supported.

EUR to USD

Wholesale exchange rate updated

EUR bank forecast currency pairs

Most of the major banks agree the EURGBP cross rate could fall further in 2020. With all of the political issues around the UK exiting the Eurozone, there is still a lot of uncertainty and it looks like banks are taking a cautious approach to forecasting the EUR GBP.

EUR to AUD forecast

Banks are currently expecting the Australian Dollar and the Euro to improve in 2021. This means the EUR exchange rate might not move relatively too much against the AUD next year.

EUR to JPY forecast

Most bank analysts agreed the EUR JPY would move higher in the first half of 2021. However, the Euro is expected to underperform the Yen in the second half of the year.

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By Natalie Robertson Updated July 1st, 2021