EUR/USD has further upside potential – Commerzbank
|Both the USD Index and EUR/USD are trading at levels last seen at the end of August. Economists at Commerzbank analyze expect rising EUR/USD levels.
First USD-weakness then EUR-strength?
The idea of an exceptionally hawkish Fed is incorrect. The Fed might act more aggressively than other central banks. In case of globally rising inflation and a more restrictive monetary policy being required everywhere that means: it hikes interest rates more quickly and further than others. However, conversely, that also means: once inflation pressure eases the Fed often is one of the first central banks to lower interest rates again. That is unlikely to be USD-positive.
Even without further US-idiosyncratic USD strength, EUR/USD would have further upside potential simply because in our view the market increasingly assesses the ECB incorrectly. Until the end of next year, ECB interest rates would have to fall by roughly 100 bps for the market’s bet to work out. According to our economists that is far too much.
Call it ECB inertia or simply a lack of scope due to a disappointingly slow fall in core inflation: anyone who believes (like we do) that the ECB will lower key rates much later and much more slowly than the market expects will expect rising EUR/USD levels simply because in addition to the USD-weakness we have been seeing over the past weeks there should then also be EUR-strength.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.