The US economy and the USDEUR exchange rate are subject to various factors in the second half of 2024. With multiple forecasts prediction

Analysts expect the US economy to face a mild recession in 2024, leading to Federal Reserve interest rate cuts. The general consensus is that the Fed will reduce rates by about 150 basis points throughout the year. Starting as early as June. This expectation of lower interest rates is primarily driven by efforts to combat slowing economic growth and inflationary pressures​

USDEUR Exchange Rate

1. Strengthening Euro:

1. • Credit Agricole and ING: Both institutions forecast a gradual strengthening of the Euro against the US dollar.. Analysts predicts the EURUSD  rate will rise to 1.13 by the end of 2024 and further to 1.15 by late 2025.  The ING supports this view, suggesting a shift in the interest rate differential in favor of the Euro. Which could see the exchange rate move higher as US yields decline​ ​​ (ING Think)​.

2. Potential for Volatility:

1. • These sources highlight the potential for increased volatility in the EURUSD pair in 2024. Which is driven by economic growth dynamics and central bank policies. Stronger US growth compared to the Eurozone could lead to a divergence in monetary policies. Impacting the exchange rate. We suggests that both the Fed and the ECB will cut rates. But the extent and timing of these cuts will determine the direction of the exchange rate​

3. Bearish Outlooks:

1. • Goldman Sachs and Wells Fargo: These institutions offer a more bearish outlook for the Euro. Goldman Sachs predicts that if the US economy outperforms and yields remain high.  The Euro might struggle, potentially dropping to around 1.06. Similarly, Wells Fargo sees downside risks for the Euro due to energy price. With impacts and economic challenges in the Eurozone, forecasting the EURUSD pair to approach 1.02 in early 2024​ 

4. Long-term Projections:

1. • Bank of America: This forecast is somewhat mixed, suggesting that while the dollar is currently overvalued, the Euro might gain ground if the US economy slows as anticipated. They predict the EURUSD exchange rate could reach 1.15 by the end of 2024, but also highlight risks related to geopolitical factors and economic performance uncertainties​

Summary

The forecast for the USDEUR exchange rate in the second half of 2024 is influenced by expected interest rate cuts by both the Federal Reserve and the European Central Bank. While some analysts see the Euro strengthening against the dollar, others predict potential volatility and downside risks due to economic and geopolitical factors. Overall, the exchange rate is likely to be driven by comparative economic growth and central bank policy decisions across the Atlantic.

The US 10-year bond yield is a critical indicator of investor sentiment and economic conditions.-  US economy in the second half of 2024:

1. Interest Rate Expectations:

1. • Rate Cuts: Analysts expect the Federal Reserve to pivot from its aggressive rate hikes to rate cuts in 2024, starting potentially in mid-year. This shift is anticipated to drive yields on 10-year Treasury bonds lower. Lower yields typically make borrowing cheaper, which can stimulate economic activity by encouraging investment and spending​ (Morgan Stanley)​​
   • Inflation Control: As inflation comes under control, the Fed’s rate cuts are likely to support economic growth. The easing of rates should help mitigate the impact of the previous rate hikes on the economy, which had slowed growth and increased the cost of borrowing​.

2. Economic Growth and Stability:

1. • Soft Landing Scenario: Many analysts believe that the US economy might achieve a “soft landing,” where economic growth slows without entering a severe recession. This outcome is expected to be supported by lower bond yields, which can alleviate financial conditions and provide a boost to sectors sensitive to interest rates, such as housing and consumer spending​.
   • Investment and Spending: With lower yields, the cost of borrowing for businesses and consumer decreases, potentially leading to increased investment and consumer spending. This could help sustain economic growth despite the previous tightening cycle by the Fed​

   • Bond Market Dynamics:

1. • Investment Returns: The bond market outlook suggests that high-quality fixed-income securities could generate attractive returns as yields decline. This is because lower yields increase bond prices, providing capital gains to bondholders. Investors might shift from equities to bonds if they anticipate stable or rising bond prices, impacting the broader financial markets​
   • Portfolio Diversification: As the correlation between stock and bond returns to its traditional negative relationship, bonds are expected to resume their role as a hedge against equity market volatility. This reestablishment of bonds as a diversification tool is likely to attract investors seeking balanced risk-return profiles​​.

1. • Foreign Investment: Lower yields on US Treasuries could impact foreign investment flows. Investors might look for higher returns elsewhere, potentially affecting the US dollar’s strength and international capital flows. This shift could have broader implications for the US trade balance and economic interactions with global markets​

Conclusion

The forecast for the US 10-year bond yields in the second half of 2024 suggests a potentially positive impact on the US economy.  Through lower borrowing costs, stimulated economic activity, and restored stability in the bond market. Investors are likely to see attractive opportunities in fixed-income securities, which could influence their portfolio strategies and overall market dynamics.