International highlights
The Euro supported by uncertainty over the Fed's trajectory
The EUR/USD pair appreciated by +1.38% to 1.1527 this week. Uncertainty surrounding the future trajectory of the Fed's monetary policy, combined with disappointing economic releases in the United States, supported the Euro this week. Indeed, the Fed left its policy rate unchanged at its July meeting, following a particularly divided vote (9 votes to 3), reflecting growing divergences over the future direction of its monetary policy.
On the macroeconomic front, the June PCE index came in line with expectations, at -0.1%. In addition, US GDP growth slowed to 1.5% in Q2, from 2.1% the previous quarter. Against this backdrop, markets are now pricing in a +25 BPS rate hike by both the Fed and the European Central Bank (ECB).
MAD evolution and foreign exchange market liquidity indicators
The Dirham lifted by the basket effect this week
The USD/MAD depreciated by -0.42% this week, moving from 9.36 to 9.32. Behind this move, a basket effect that stood at -0.71%, linked to the Dollar's depreciation internationally. The liquidity effect, for its part, came out in favour of the Dollar, at +0.29%, reflecting a tightening of Dirham liquidity conditions. Against this backdrop, liquidity spreads narrowed by +28 BPS, to -2.55% at the end of the week.
Volatility indicators
Heightened rate-hike expectations, despite a lull in oil
Investors are now pricing in strong expectations of interest rate hikes from the Fed and the ECB, with regards to the inflationary shock induced by the Middle East conflict. Furthermore, renewed hopes of a diplomatic resolution to the US-Iran conflict have eased the pressure on Brent prices, which stood at $90/bbl at the end of the week. In this environment, the market remains characterised by heightened volatility. We therefore recommend that operators hedge their transactions over short-term horizons.
EUR/USD outlook – BLOOMBERG
Broker forecasts were revised upward over the long term this week. The pair is expected to trade around 1.15 in Q3-26, before reaching 1.16 in Q4-26, a level at which it should stabilise until Q1-27. In Q2-27, the target remains set at 1.17. Over full-year 2027, the pair is expected to stand around 1.19, versus 1.18 a week earlier. Over the longer term, the new expectations are at 1.18 for 2028 and 1.17 for 2029, versus 1.16 last week.
In the United States, the June core PCE index came in at 0.1%, versus forecasts of 0.2%, signalling gradual disinflation. Initial jobless claims stood at 197K, up +9K from a week earlier. Along the same lines, the University of Michigan one-year inflation expectations for July came in line with expectations, at 3.3%. On the basis of these elements, markets are anticipating a +25 BPS hike in the Fed Funds rate at the conclusion of the September FOMC, following mixed signals after the July status quo.
On the Eurozone side, economic releases surprised positively, with Q2 GDP coming in at 0.4%, versus -0.2% a quarter earlier. The annual CPI as of end-July stood at 2.9%, in line with consensus. Under these conditions, investors are pricing in strong expectations of a +25 BPS interest rate hike by the ECB in September, according to the ECB Watch tool.
Maintaining our forecasts at the 1-month 2-month and 3-month horizons
Taking into consideration EUR/USD forecasts and liquidity conditions on the foreign exchange market, we have maintained our USD/MAD projections at the 1-month, 2-month and 3-month horizons.
Broker expectations for EUR/USD point to an appreciation of the Euro against the Dollar over the 1 to 3-month horizons, relative to spot levels.
Dirham liquidity spreads are expected to ease at the 1-month horizon, and stabilize at the 2-month and 3-month horizons, relative to current levels.
Under these conditions, the USD/MAD target levels stand at 9.28, 9.28 and 9.28 at the 1-month, 2-month and 3-month horizons respectively, against a spot level of 9.32.
The EUR/MAD target levels stand at 10.60, 10.60 and 10.60 at the 1-month, 2-month and 3-month horizons respectively, against a spot level of 10.74.
