Economists at Rabobank believe the US dollar has room to weaken in the next weeks, however, EUR/USD may have already priced in the improvement in global conditions and expect a return to risk-off environment to lead the pair below 1.10 by year-end.
Key quotes
“The value of the USD is likely to fall further if there is additional rotation back into EM assets. However, it could be argued that the risk trade is, or could soon become overvalued, at this point there is likely to be another wave of demand for the safe-haven USD.”
“Although the bounce in asset prices has been achieved with the support of copious amounts of central bank and fiscal support, these policies are unlikely to be able to protect all businesses from the developing demand shock. Already this can be seen in rising unemployment rate and growing savings ratios. Although investors have largely written off Q2 economic data as inevitably appalling, Q3 data still has the capacity to shock.”
“While we see the potential for the USD to weaken further in the weeks ahead if risk appetite stays strong, on a three-to-six month view we see shock for another round of safe-haven buying which could take EUR/USD back below 1.10 before year-end.”
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