International Highlights
ed rate cut expectations decline
The EUR/USD pair depreciated for the 2nd consecutive week, falling by -0.54% from 1.1689 to 1.1626. The Dollar's strength is explained by persistent inflation and solid economic data in the United States, which have reduced expectations of a rapid Fed rate cut. Indeed, the US consumer price index rose to 2.7% in June, after 2.4% in May, and US retail sales rose by +0.6% in June on a monthly basis after a decrease in May. This is explained by the impact of higher tariffs on prices, which is beginning to be felt. Under these conditions, markets are anticipating 2 Fed Funds rate cuts of -25 BPS each by the end of 2025.
MAD evolution and foreign exchange market liquidity indicators
Liquidity spreads at 3-year lows
The USD/MAD appreciated by +0.37%, from 9.01 to 9.04 this week. This weekly evolution was driven by a double positive effect in favor of the Dollar. On the one hand, a basket effect of +0.25% as the Dollar's appreciated against the Euro this week. On the other, a liquidity effect of +0.12% as liquidity conditions for the Dirham have tightened this week. Liquidity spreads thus narrowed by +11 BPS to -4.82%. Despite this change, these levels remain at their lowest levels in more than three years thanks to lower import flows related to the decrease in fuel price.
Volatility indicators
A volatility fueled by trade tensions
At the end of the 90-day pause since the announcement of the new tariffs, Trump announced tariffs on imports from several countries starting August 1st, which include a 30% rate on the EU. If trade negotiations fail by this new deadline, these tariffs would be applied. In this context of high uncertainty, significant volatility is expected in the ST market. We recommend traders to hedge their transactions over time horizons of 1 to 3 months.
EUR/USD outlook – BLOOMBERG
Brokers' forecasts for the EUR/USD pair were reviewed upwards this week. The pair is expected to reach 1.17 in Q3-25, up from 1.16 a week earlier. It is expected to stabilize at 1.17 in Q4-25 before rising to 1.19 in Q1-26, up from 1.18 initially. It is expected to remain at 1.19 in Q2-26 before rising to 1.20 in 2026. In 2027, the target level is 1.20, up from 1.19 the previous week. In 2028, the target is 1.21, up from 1.22 initially.
In the United States, inflation stood at 2.7% in June, up from 2.4% in May. In the face of uncertainties surrounding the impact of tariffs, the Fed is expected to maintain Fed Funds rates in the [4.25% - 4.50%] range in July. After the July 9th deadline has expired, new tariffs have been announced for several countries starting August 1st, including a 30% rate on imports from the EU. If trade negotiations fail by August 1st, these tariffs are expected to take effect. In this still uncertain environment, markets are anticipating a cumulative Fed Funds rates cut of -50 BPS by the end of 2025, with an initial rate cut of -25 BPS in September.
In the Eurozone, inflation stood at 2.0% in June, after 1.9% in May. Despite this slight increase, inflation remains in line with the ECB's 2% target. After deciding to cut the deposit facility rate by -25 BPS for the 8th time to 2.00% in June, the ECB is expected to decide a monetary pause in July in the face of uncertainties related to trade tensions. A final ECB rate cut by the end of the year 2025, however, remains likely.
Downard review of our 1 month, 2 months and 3 months horizon forecasts
Given the EUR/USD exchange rate forecast and liquidity conditions in the foreign exchange market, we have reviewed our USD/MAD exchange rate forecasts downwards for the 1-month, 2-month, and 3-month horizons.
Brokers' EUR/USD exchange rate forecasts favor an appreciation of the Euro against the Dollar over the 3-month horizon.
MAD liquidity spreads are expected to narrow very slightly relative to spot levels over the 1-month and 2-month horizons, then narrow slightly again over the 3-month horizon.
Under these conditions, the target levels for the USD/MAD exchange rate are 9.03; 9.03 and 9.06 over the 1-month, 2-month, and 3-month horizons, compared to a spot rate of 9.04.
The target levels for the EUR/MAD exchange rate are 10.56; 10.56 and 10.60 at 1-month, 2-month and 3-month horizons against a spot level of 10.53.
