Analysts at Danske Bank expect the Federal Reserve (Fed) to utilize its room for maneuvering to ease monetary policy more than the European Central Bank (ECB) in the coming six months, given the weaker GDP growth in the US and elevated global risks weighing on the US economy.
Key Quotes:
“We continue to see a good case for the Fed to deliver another four rate cuts over the coming four meetings and eventually get ahead of the curve in terms of monetary easing. We are still of the view that the strong forward guidance and open-ended QE programme announced by the ECB in September will make a difference for the better (i.e. higher inflation expectations and weaker EUR) over the medium term. However, in the end, the Fed has more room to ease monetary policy than the ECB and we believe the Fed will use this extra room, which will push EUR/USD higher eventually.”
“If the Fed steps up easing more forcefully in the short-term, we could see a faster rebound in EUR/USD than what we project. A further easing of trade tensions and a lower risk of a hard Brexit should also support our EUR/USD projection.”
“Strong forward guidance from the ECB will give some counterweight to a continuation of the Fed rate cuts in the short-term. Eventually, the Fed will get ahead of the curve and push EUR/USD higher. We forecast EUR/USD at 1.11 in 1M and 3M, 1.13 in 3M and 1.15 in 12M.”
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