EUR/USD has recently faced renewed headwinds, pushing the cross back below 1.10. Economists at Danske Bank maintain their strategic case for a lower EUR/USD.
USD strength in store
“In line with market expectations, we think the Fed has delivered its last rate hike for this hiking cycle. However, we think the current 3×25 bps rate cuts priced for the rest of the year seem too aggressive. If we are right in this call, that will add some USD support in H2. For the ECB, we think there are three 25 bps rate hikes left, bringing the policy rate up to 4%.”
“We maintain the strategic case for a lower EUR/USD based on relative terms of trade, real rates and relative unit labour costs. Despite the impending Fed pause, we see the prospect of the USD finding further near-term support as we expect the Fed to hold rates steady into 2024. Furthermore, we think the outlook of the US economy looks less gloomy.”
“We continue to forecast the EUR/USD cross at 1.03 in 6-12M.”
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Danske Bank, one of the largest and most established financial institutions in Europe, has recently released a report on the future prospects of the Euro/US Dollar (EUR/USD) exchange rate. The report suggests that the EUR/USD exchange rate is likely to move downwards over the coming months due to ongoing economic uncertainty in Europe and strength of the US Dollar.
The European Union has struggled with low growth and a sluggish economic recovery. This has been further exacerbated by the uncertainty associated with Brexit, as Britain continues to negotiate the terms of its departure from the European Union. On the other side of the equation, the US economy appears to be in a strong position with a rate of growth close to a five year high.
Moreover, the US Dollar is currently benefiting from a rise is US interest rates. This situation is likely to result in capital flows from Europe to the US, causing downward pressure on the EUR/USD exchange rate.
The report from Danske Bank indicates that the Euro could weaken further and that the EUR/USD exchange rate could fall to as low as 1.10 over the next few months. This could have significant implications for businesses operating in the Eurozone and in the US, as companies trading with each other adjust to the changing exchange rate.
In conclusion, Danske Bank suggests that the EUR/USD exchange rate is likely to move downwards in the coming months due to a combination of economic uncertainty in Europe and a strengthening US Dollar. This could have significant implications for businesses operating in both the Eurozone and the US.