EUR/USD: Patience before another big rally – ING
|EUR/USD is trading close to 1.0900 after the Fed and ECB meetings. In the view of economists at ING, markets’ doubts on ECB guidance may be a larger short-term driver, and delay another big EUR/USD rally to the second quarter.
Rate differentials may swing meaningfully in favour of the EUR
“EUR/USD rate differential is still more likely to swing in favour of the Euro this year. However, another big rate-driven EUR/USD rally may not be a story for this quarter, as the March meetings may see the Fed push back against rate cut speculation and the ECB still struggles to sell its tightening plans to the market.”
“The second quarter of this year is when the ECB-Fed divergence may emerge more distinctly, as we expect the ECB to deliver another 25 bps and strongly signal rates won’t be cut for some time, while an acceleration of the slowdown in the US economy and inflation will heavily challenge any pledge by the Fed to keep rates at 5.0% for long.”
“We target 1.15 in EUR/USD in 2Q23, and 1.12 in 4Q23.”
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