The USD has weakened materially over the past 9-12 months. However, economists at Nordea expect EUR/USD to resume falling before long as the improving macro environment and stronger inflation signals are likely to convince at least the Fed to change course. What’s more, bond yields have more climbing to do.
USD to return to strength
“The US is likely to outperform all peers growth-wise this year, which over time usually leads to a stronger USD versus other currencies as a result of the side-effects of a stronger growth pace. First, USD bonds may continue to yield better than most peers, second the Fed is more likely to respond to strong growth rates via a slightly tighter policy, maybe via a tapering discussion already this summer.”
“Our view on USD interest rates could also lead to a reversal of the EUR/USD towards the second half of this year. We find it likely that we will end 2021 on clearly lower levels in EUR/USD compared to current spot, as the USD interest rates are simply more alive than EUR dittos, not least as the ECB seemingly wants to keep printing more into the economic rebound during the spring and early summer.”
“The fixed income market also reflects relative growth perspectives, which simply look more upbeat in the US compared to in Europe, among other things due to a more successful vaccine roll-out. We target 1.15-1.16 in EUR/USD.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.