Euro is likely to appreciate only slightly against the Dollar – Commerzbank

Economists at Commerzbank expect the EUR/USD exchange rate to end the year at 1.1000

Limited upside potential

We see limited upside potential for EUR/USD this year. By the end of the year, we expect prices to be around 1.1000. 

The Euro is likely to appreciate slightly over the next few months if it becomes clear that the ECB will cut its key interest rate more slowly than the market had previously expected. However, the EUR-positive effect is unlikely to last. If the market recognizes that Eurozone inflation is stuck at stubbornly high levels, even moderate ECB interest rate cuts will be seen as inappropriately loose monetary policy and therefore EUR-negative.

Even if Fed rate cuts are priced in, the dollar may suffer a little because of the current strength of the USD if they are actually announced. However, the negative effect will probably be limited by the fact that it should soon become clear that the Fed will cut interest rates less than the market had previously expected. In contrast to the ECB, the Fed's stance is also likely to be USD-positive in the medium and long term given the lower inflation we expect in the US. 

Another USD-positive argument is that the growth gap between the US on the one hand and the Eurozone and most other G7 economies on the other is likely to widen further.