EUR/USD to drop to 1.19 in the next month amid inflation debate – Rabobank

FXStreet Insights Team FXStreet

A couple of misses on US data releases on Wednesday caused the USD to pare back some of its earlier strength. On Thursday, investors seem to ignore rising signs of inflation as the US dollar and stock markets are holding up despite growing worries of higher prices. Jane Foley, Senior FX Strategist at Rabobank, expects the inflation debate to drag EUR/USD down to 1.19 over the next month.

It will take time for the inflation debate to resolve

“With the market consensus pointing to a 995K rise for the April Nonfarm Payroll number and with several forecasters expecting a number well above 1,000K, the USD may continue to find a good level of support in the near-term.”

“Beyond the end of this week, the USD is likely to continue to respond to the debate about whether or not the Fed’s view that inflation will be transitory is correct. Given the market’s sensitivity to the issue, we see risk that the inflation debate will take EUR/USD back to 1.19 on a one-month view.”

“It will take time for the inflation debate to resolve. Meanwhile, it is likely that central banks will deliberately decide to stay behind the curve in order to allow more scope for interest rates to ‘normalise’ eventually. In the meantime, we would expect the inflation debate to lead to temporary bouts of support for the USD.”

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