Analysts at Danske Banks, expect the euro to trade at low levels for an extended period considering the indication of the Federal Reserve that would be on hold for now and the resilience in EUR/USD to global news.
Key Quotes:
“The US economy remains on a stronger footing than the euro area economy. In the euro area, the manufacturing sector is under pressure from weak global investment activity due to the trade war, Brexit and weak global growth, but we have seen some stabilisation in the survey data.”
“The Fed has adopted a ‘wait-and-see’ approach in terms of assessing global risks such as trade and Brexit. On the back of this, we have updated our Fed call and now expect only one more cut in the next 3-6 months (previously three more cuts).”
“While the US economy is strong enough for the Fed to not cut any further for now, we expect it will want to add more support next year. The European Central Bank has similarly eased but has not communicated any further plans.”
“We look for EUR/USD to fall to 1.09 in the near term as the Fed has finished cutting rates for now. We look for a recovery back to 1.11 on 6M on resumed Fed easing and further to 1.13 on a recovery in global economic growth and underlying support from inflation divergence. A key risk for a strengthening of the EUR, and more so than we currently forecast, would be if active fiscal policy is introduced, but this is not currently in the plans.”
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