EUR/USD: Conflict risks and policy divergence – Commerzbank

FXStreet Insights Team FXStreet

Commerzbank’s Antje Praefcke notes that EUR/USD is likely to remain rangebound in the very near term as markets await developments in the Iran conflict and key central bank meetings. Praefcke expects the Federal Reserve (Fed) to start cutting rates toward year-end while the European Central Bank (ECB) raises rates in June and then pauses, underpinning a slightly higher EUR/USD over the medium term, though Middle East risks weigh more heavily on the Euro (EUR).

Policy divergence and conflict risks

"There is unlikely to be much movement in EUR-USD today - provided, of course, that there are no unforeseen improvements or deteriorations in the Iran conflict."

"Our economists assume that the Fed will not be able to resist pressure from the U.S. president in the medium term, which is why the key interest rate is likely to be cut for the first time toward the end of the year, with two further cuts expected in 2027."

"In contrast, the ECB is expected to raise its key interest rate in June and stay on hold thereafter."

"This is also the basis for our EUR/USD forecast, which implies a slightly higher EUR/USD exchange rate in the medium term."

"For as the latest GDP figures to be released this week will show, the U.S. continues to lead the way in terms of growth, meaning that, in my view, the risks of a prolonged conflict are greater for the euro zone (and the euro) than for the U.S."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

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