EUR/USD to rise as the Fed moves away from its final interest rate level first – Commerzbank

The end of the cycle of rate hikes by the Fed and the ECB is in sight. I knowCommerzbank economists expect the Fed to move soon to cut rates, while the ECB will keep its interest rate level unchanged. This will benefit the euro.

Lower EUR/USD levels not expected until 2024

“We expect the first rate cuts for the Fed in the second half of 2023 (and more in 2024), but none for the ECB. This should weigh on the dollar and boost EUR/USD.”

“Lower energy prices also argue for higher EUR/USD levels. On the one hand, the terms-of-trade effect no longer supports the dollar. On the other hand, an energy crisis is likely to have been averted in Europe and that the recession in the euro zone is less severe than expected. This is also support for the euro.”

“Lower EUR/USD levels cannot be expected until 2024, when the recessions in Europe and the US have ended, when it becomes clear that inflation will no longer approach central banks’ targets and when, consequently, central banks have to tighten their monetary policies again. Then the Fed, as the more aggressive central bank, should make the dollar look more attractive again.”