The idea of a rate cut cycle for ECB and Fed is an argument in support of higher EUR/USD – Commerzbank

FXStreet Insights Team FXStreet

The US CPI induced USD selling, with EUR/USD notably moving close to the 1.09 mark. Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, analyzes the pair’s outlook.

Considerable potential for further USD weakness

A moderate development of inflation rates is not the strongest argument in favour of Fed rate cuts. If there is a recession on top of that after all, the environment would be right for a Fed rate cut cycle. To me, that means: there is still considerable potential for further USD weakness.

From the market’s point of view, there is no doubt a lot to suggest that also on the way down the Fed will act more aggressively and possibly also more quickly than the typically inert ECB.

And that is why from today’s point of view, where no market participant can project the details with any certainty, the idea of a rate cut cycle for both central banks is an argument in support of higher EUR/USD exchange rates.

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