A very significant change in the EUR/USD forecast – Commerzbank

Commerzbank’s economists have revised their Fed forecast downwards very significantly – by more than they are lowering their US inflation forecast. Also, they’re slightly lowering ECB interest rate expectations and significantly lowering their inflation forecast, Commerzbank’s Head of FX and commodity research Ulrich Leuchtmann notes.

USD weakness in the medium term

“We have changed our EUR/USD forecast. As regular readers know, we believe that a good part of the USD strength seen so far was based on the impression of a structural US growth advantage and a particularly active US monetary policy. Since we now have to assume that this impression will be eroded by actual developments in the coming quarters, we now have to assume USD weakness in the medium term.”

“And because at the same time the EUR-negative argument of high eurozone inflation rates and a fairly relaxed ECB monetary policy is at least significantly weakened in view of our more moderate eurozone inflation forecast, some of the EUR-negative arguments also fall away. Both together mean that we now have to assume that EUR/USD will rise significantly. We consider levels around 1.14 to be possible by mid-2025.”

“In the second half of 2025, the picture could change again. If – as we expect – the US economy picks up again, the impression may arise that the Fed at least no longer has any scope for interest rate cuts, and perhaps even fantasies of interest rate hikes will make themselves felt again. And perhaps it will then be time again for the market to take a more skeptical view of the ECB's monetary policy.”