iBanFirst Predictions for EUR/USD in Q4 2024: Insights for Spanish Businesses to Stay Ahead of Currency Risks

Payments
08.10.2024 10:05 am

As we enter the last quarter of 2024, iBanFirst, a leading global provider of foreign exchange and international payments, operating in 10 European countries, presents its Currency Outlook for the EUR/USD pair. These predictions aim to give Spanish businesses engaged in international trade valuable insights into the latest currency market trends, helping them anticipate and manage potential fluctuations and risks effectively.

Key Events Influencing the Currency Market in Q4 2024

For the last months of this year and well into 2025, the driving force of foreign exchange markets and the entire financial system will be the normalization of monetary policy in both the EU and the United States. As central banks make moves to adjust their policies, the effects will significantly shape market sentiment and investment strategies globally, including for Spanish businesses engaged in international trade.

The US presidential election will in reality have few long-term effects on the currency market. Other factors, such as China's economic trajectory, weak liquidity across market segments, and especially the geopolitical developments in the Middle East, remain unpredictable and could influence the market.

EUR/USD forecast for Q4 2024

Except if the election results are contested — which remains a major question — analysts believe the USD will remain strong in Q4 and into 2025. They forecast the EUR/USD to fluctuate between 1.07 and 1.12 until the end of the year.

Both the Democrats and Republicans are engaged in protectionist policies, which structurally tend to strengthen the currency. While it is well-known that Trump favors protectionist measures, it’s less recognized that the current Democrat administration is essentially following a similar path. Under Biden, one-third of the world and 60% of the lowest-income countries are subject to some form of US protectionist measures.

Two key structural factors will influence the EUR/USD exchange rate this year and beyond:

US Economic Outperformance: With the Federal Reserve aggressively cutting rates and US productivity near 3%, the US economy is expected to outpace Europe in the coming years. This could attract investors seeking higher returns, supporting a strong dollar.
US Stock Market Outperformance: Strong equity performance in the US, particularly in the S&P 500 and Nasdaq indexes, will attract capital inflows, further boosting the dollar.

iBanFirst estimates that the dollar index is currently overvalued by 9.3%, although this is still below the 1980s peak of over 20%. This overvaluation is likely to persist for the years to come.