EUR/USD to rise as Fed set to move away from its final interest rate level first – Commerzbank
26.01.2023, 07:50

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

The end of the Fed and ECB rate hike cycle is in sight. Economists at Commerzbank expect the Fed to switch to rate cuts soon thereafter, while the ECB will leave its interest rate level unchanged. This will benefit the Euro.

Lower EUR/USD levels are not to be expected again until 2024

“We expect first rate cuts for the Fed in H2/2023 (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 in Europe has probably been averted and the recession in the euro area is likely to turn out less severe than had been expected in the meantime. This, too, is supporting the Euro.”

“Lower EUR/USD levels are not to be expected again until 2024, when the recessions in Europe and the US are over, when it becomes clear that inflation will not return to anywhere near the central bank targets and when, accordingly, the central banks have to tighten their monetary policies again. Then the Fed, as a more aggressive central bank, should make the Dollar look more attractive again.”

 

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