JPMorgan sees euro 2019 rebound

Bloomberg

The end may be in sight for the euro’s worst run since 2015. The common currency will probably bottom out against the dollar in early next year, and rise from there as the US economic outperformance runs out of steam, undermining support for the greenback, according JPMorgan Chase & Co. It may hit a low of $1.11 in the first quarter, a 2.2 percent drop from current levels, before rebounding to $1.18 by the end of the year, according to the bank.
The euro will benefit from any dollar weakness with US growth seen slowing “materially” in 2019, slipping below that of the euro area, as the boost from this year’s fiscal measures fades and the Federal Reserve’s policy tightening restricts output, JPMorgan strategists wrote in a note. The single currency should also draw support from the prospect of the European Central Bank raising interest rates late next year, they wrote.
“The euro should deliver a spring inflection point higher as focus turns to the ECB in” the second half, strategists including John Normand and Paul Meggyesi wrote. “The biggest change in 2019 will be the fading of US economic exceptionalism.”
The single currency has dropped 5.5 percent against the greenback this year, and is on course for the biggest annual loss since 2015.
The bank predicts that the Fed will raise rates five times between now and the end of 2019, taking rates into slightly restrictive territory by late next year. The ECB has pledged to keep borrowing costs at record lows at least through the summer of 2019.
While the ECB may only be able to hike once or twice in 2019, investors are likely to favor creditor currencies against those of debtors late in the economic cycle, according to JPMorgan. On that basis, the euro will
outperform as the region enjoys a current-account surplus that’s forecast at 3.1 percent of output next year while the US shortfall is seen at 2.6 percent.