The USD has weakened materially over the past 9-12 months. However, economists at Nordea expect EUR/USD to resume falling before long as the improving macro environment and stronger inflation signals are likely to convince at least the Fed to change course. What’s more, bond yields have more climbing to do.
USD to return to strength
“The US is likely to outperform all peers growth-wise this year, which over time usually leads to a stronger USD versus other currencies as a result of the side-effects of a stronger growth pace. First, USD bonds may continue to yield better than most peers, second the Fed is more likely to respond to strong growth rates via a slightly tighter policy, maybe via a tapering discussion already this summer.”
“Our view on USD interest rates could also lead to a reversal of the EUR/USD towards the second half of this year. We find it likely that we will end 2021 on clearly lower levels in EUR/USD compared to current spot, as the USD interest rates are simply more alive than EUR dittos, not least as the ECB seemingly wants to keep printing more into the economic rebound during the spring and early summer.”
“The fixed income market also reflects relative growth perspectives, which simply look more upbeat in the US compared to in Europe, among other things due to a more successful vaccine roll-out. We target 1.15-1.16 in EUR/USD.”
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