Analysts at Westpac offer their outlook on the EUR/USD pair, in the face of US-China trade escalation.
Key Quotes:
“After the new US tariffs were announced, Euro bounced back to around USD1.12, arguably in relation to European investors reversing financial outflows associated with persistent current account surpluses as they reassessed the souring global economic environment. We believe this 'return-to-home' dynamic will prove short lived.
- Disruption from the Sino-US trade war has had an outsized effect on Europe's open economy versus the more-insular US … European investors are likely to look to redeploy capital overseas again in line with relative growth fundamentals.
- Even after our forecast three cuts in the federal funds rate to 1.375% at December, US treasuries will remain a high-yielding safe-haven asset, further aiding the US dollar.
- Our base case is for Euro to depreciate to USD1.08 end-2019.
- Hold that level until at least mid-2020.
Even after Euro begins to recover, only a slow drift higher is anticipated, as growth remains around trend, inflation well below target, and risks to the outlook keep the ECB on guard. At end-2020, we see Euro at only USD1.11.”
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