EUR/USD will quote 1.11 in a month – Danske Bank

We are reviewing our forecast for the EUR/USD to reflect a material change in structural drivers, reports Danske Bank’s currency analyst Frederik Romedahl.

The impulse of fiscal reform in Europe begins to support the feeling

“In our analysis of long -term trends in exchange rate markets, we especially observe three parameters: 1) the parity of real rates, 2) the relative attractivity of the asset market and 3) the perspectives for global monetary conditions. In summary, the perspectives for blocks 1 and 2, but potentially also 3), have changed. Although a recession in the US in 2025 The probability has increased significantly – now it is valued by around 60% in prediction markets.

“The policies aimed at reducing immigration, cutting federal employment (for example, Doge) and weakening productivity dynamics are all negative for the US long -term growth potential. This points to differentials of narrower real rates in the future – a fundamental change that reduces support to the USD. At the same time, there are early but clear signals of capital rotation outside the American assets outside the US assets. If this change turns out to be structural – particularly a rotation outside the American technological sector – would mark a break with the dominant investment narrative of the last decade, with negative implications for the USD. “

“On the EUR side, the impulse of fiscal reform in Europe begins to support the feeling. But the most important driver of our revised vision is the growing unpredictability of US policy. With the US, more and more disagree with its global allies and institutions, we believe that the relative risk premium on US assets is increasing – and over time, that will weigh on the USD. of forecast for EUR/USD to 1.11 in 1 month (from 1.09), 1.12 in 3 months (1.08), 1.14 in 6 months (1.07) and 1.14 in 12 months (1.06). “