A very significant change in the EUR/USD forecast – Commerzbank

Commerzbank economists have revised down their Fed forecast very significantly, more than they are cutting their US inflation forecast. In addition, they are slightly lowering ECB interest rate expectations and significantly reducing their inflation forecast, notes Ulrich Leuchtmann, Head of FX and Commodities Research at Commerzbank.

USD weakness in the medium term

“We have changed our EUR/USD forecast. As regular readers know, we believe that a good part of the USD strength seen so far was based on the impression of a structural growth advantage in the US and a particularly active US monetary policy. Since we now have to assume that this impression will be eroded by real developments in the coming quarters, we now have to assume c.”

“And because at the same time the negative argument for EUR of high inflation rates in the Eurozone and a rather loose ECB monetary policy weakens at least significantly in view of our more dovish inflation forecast for the Eurozone, some of the negative arguments for EUR also disappear. Both together mean that we now have to assume that EUR/USD will rise significantly. We consider possible levels around 1.14 by mid-2025.”

“In the second half of 2025, the picture could change again. If, as we expect, the US economy recovers again, the impression could emerge that the Fed at least no longer has room for interest rate cuts, and perhaps even fantasies of interest rate hikes could make themselves felt again. And perhaps then it will again be time for the market to take a more skeptical view of the ECB’s monetary policy.”

Source: Fx Street

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