Economists at Société Générale expect the EUR/USD pair to race higher driven by relative natural rates.
Do ‘natural’ interest rate trends suggest a stronger Euro ahead?
“The New York Fed has now updated its estimates of natural rates and its work suggests that the European natural (real) rate has risen from a low of 38 bps in mid-2020 to 83 bps now, while the US rate has fallen from 0.9% to 0.7%. This isn’t going to do anything to help the Euro in the short run, but it raises the possibility that when (if) the Fed and ECB can get rates back to a neutral setting, we should see ECB rates move higher than Fed rates, which hasn’t happened since 2011.”
“EUR/USD almost broke above 1.50 in that cycle and while that seems inconceivable, we’re more optimistic than we have been for a while, that we’ll see EUR/USD above 1.30 again, once the war in Ukraine and Europe’s energy troubles are behind us.”
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