International highlights
The Fed cuts its rates by -25 BPS in December
The EUR/USD pair appreciated by +0.84% this week, increasing from 1.1642 to 1.1740. The Fed decided this week to cut interest rates by -25 BPS. Despite persistently high inflation in the United States, this decision was made to address the cooling of the labor market. Indeed, it's worth noting that the Fed operates within a dual mandate, which is based on the double objective of price stability and full employment. Furthermore, the Fed also indicated this week that it will purchase short-term US Treasury bills to maintain sufficient liquidity.
MAD evolution and foreign exchange market liquidity indicators
A weakening of the Dollar post-FOMC this week
The USD/MAD pair depreciated by -0.40% this week, decreasing from 9.23 to 9.20. This variation has been driven by a negative basket effect in favor of the Moroccan Dirham. Indeed, this effect stood at -0.43%, reflecting the weakening of the Dollar against the Euro this week. The liquidity effect, on the other hand, was positive at +0.03% after a slight tightening of liquidity conditions for the Dirham. In this context, liquidity spreads increased by +2.6 BPS to -2.76% this week. Note that Bank Al-Maghrib's decision to keep its key rate stable in December 2025 maintains a stable macroeconomic framework for the MAD's exchange rate.
Volatility indicators
Fed’s monetary easing at an uncertain pace
Fed's projections now suggest a single rate cut of -25 BPS in 2026. Note that the scenario of a faster monetary easing in the MT remains contingent on labor market developments and economic data. Therefore, we recommend investors to hedge their transactions from 1 to 3 months.
EUR/USD outlook– BLOOMBERG
Brokers' forecasts for the EUR/USD pair were almost stable this week. The pair is expected to trade at 1.18 in Q1-26 and Q2-26. It is expected to rise to 1.19 in Q3-26 until Q4-26, before reaching 1.20 over the 2027-2029 period.
In the United States, inflation came out at 3.0% in September after 2.9% in August, and the PCE Core index stood at 2.8% in September after 2.9% in August. Despite inflation remaining above the 2% target, the Fed decided a -25 BPS rate cut in December to address the weakness of the labor market. The Fed Funds rate stand in the range [3.50% - 3.75%]. It should be noted that markets are currently anticipating a monetary pause at the next FOMC meeting in January 2026 and 1 or 2 rate cuts of -25 BPS each in 2026, according to the CME's FedWatch tool.
In the Eurozone, inflation rebounded slightly to 2.2% in November after 2.1% in October. Inflation remains close to the ECB's target of 2%. After a year of monetary easing, the ECB decided a monetary pause in July after the progress made on controling inflation. In the ST and MT, the ECB's monetary policy is expected to remain neutral, while the Fed’s monetary policy is expected to become more accommodative. The narrowing of the divergence of interest rates between the US and the Eurozone explains the bullish forecasts for EUR/USD in the ST and MT compared to the spot level
Downward review of our 2 months and 3 months horizon forecats
Given the EUR/USD exchange rate forecasts and liquidity conditions in the foreign exchange market, we have reviewed our USD/MAD pair forecasts downwards for the 2-month and 3-month horizons.
Brokers' EUR/USD exchange rate forecasts indicate a slight appreciation of the Euro against the Dollar over the 3-month horizon, compared to spot levels.
Dirham liquidity spreads are expected to gradually tighten over the 1-month, 2-month, and 3-month horizons compared to spot levels.
Under these conditions, the target levels for the USD/MAD exchange rate are :
- 9,26 at 1 month
- 9,26 at 2 months
- 9,31 at 3 months
compared to a spot rate of 9.20
The target levels for the EUR/MAD exchange rate are :
- 10,88 at 1 month
- 10,88 at 2 months
- 10,94 at 3 months
against a spot level of 10.79
