iBanFirst expects slight depreciation trend for RON in Q1 amid weak growth in the Romanian economy

As we enter 2024, economic dynamics are shaping fresh trends in the forex market, presenting traders with a mix of opportunities and challenges. In an effort to assist Romanian import-export companies streamline their budget forecasting, iBanFirst, a leading global provider of foreign exchange and international payments for businesses, present in 10 European countries, provides a currency outlook with predictions for the EUR, USD, and RON in the first quarter of 2024.

Key events that will impact the foreign exchange market in Q1 2024:

• Monetary Policies Loosening: Following the period of monetary policies tightening, analysts expect the cycle of interest rate cuts to begin in major developed economies. As central banks embark on this shift, iBanFirst foresees a return of volatility in the currency markets.

• Economic slowdown in Europe: There are concerns that Europe might be on the brink of a recession, triggered by slowing growth of its main economies, Germany and France. In contrast, the US economy is surpassing expectations, leading to the strengthening of the dollar and depreciation of the euro.

• Disinflation trend in the Eurozone: Encouragingly, inflation in the Eurozone is showing a more substantial decline than initially predicted. The European Central Bank (ECB) has adjusted its inflation projection for 2024, reducing it from 3.2% to 2.7%.

`As we step into 2024, currency volatility is set to make a comeback, affecting companies engaged in trade, regardless of their size. Even a small shift in exchange rates can significantly impact a business’s profit margin, influencing its competitiveness in international markets. In this unpredictable scenario, Romanian import-export companies should proactively address currency fluctuations. This involves regularly monitoring currency markets to stay informed about the latest trends and implementing a tailored currency risk management plan with the help of a risk management specialist`, says Alin Latu, Country Manager iBanFirst Romania.

EUR/USD forecast for Q1 2024

iBanFirst analysts predict a downward trajectory for the euro/dollar exchange rate in the first quarter, reaching 1.05. This forecast is shaped by the strength of the US economy and the fragility of the European economy.

Europe’s challenges stem from a delayed post-COVID economic recovery, an ongoing energy crisis, and declining exports. Also contributing to the current challenges are the overly restrictive monetary policy in a context of high debt and the end of the German economic model, based on access to cheap Russian energy and strong competitiveness in the automotive sector, which is now threatened by China.

While Europe faces the risk of recession, the US economy continues to outperform expectations, driven by resilient domestic consumption and a thriving housing market. The Federal Reserve’s decision to pause its monetary policy has maintained attractive real yields in the US, and analysts anticipate the first interest rate cut by the Fed in Q1 2024. The global economic downturn further strengthens the dollar’s value as a safe-haven currency during times of uncertainty.

EUR/RON and USD/RON forecast for Q1 2024

iBanFirst analysts expect a slight depreciation trend for the Romanian leu (RON) amid weak growth in the local economy. This slowdown is caused by challenges in the services and industrial sectors, weakening activity in the euro area, and fiscal consolidation measures. Romania’s real GDP growth in 2023 is around 2%, below the initial forecast.

Moreover, the recent fiscal and budgetary measures bring with them economic uncertainties and risks. The annual inflation rate is expected to rise at the beginning of this year, influenced by the increase and introduction of taxes.

All these domestic factors, combined with the overall state of the European economy and the conflict in Ukraine, affect the growth prospects and the Romanian currency. On the other hand, the National Bank of Romania stands out in the region as the least tolerant to currency volatility and has not allowed a significant depreciation of the leu.

EUR/RON pair: Analysts expect the Romanian leu to trade at 4.99 against the euro in the first quarter of this year.

USD/RON pair: Analysts expect the Romanian leu to trade at 4,70 against the dollar in the first quarter of this year.