Euro: Credibility restored supports Dollar – Commerzbank
Commerzbank’s Thu Lan Nguyen notes that the Fed’s unanimous September rate hike has temporarily restored its credibility and supported the Dollar, prompting a lower EUR/USD year-end forecast to 1.15 from 1.17. However, they expect both US and euro area rate expectations to be revised down over 2027, ultimately weighing more on the US Dollar (USD) than the Euro (EUR) and allowing EUR/USD to gradually rise.
Fed credibility and shifting rate path
"As we expect the Fed to deliver one additional rate increase before year-end, major doubts about the central bank’s credibility are unlikely to resurface in the near term. We have therefore lowered our EUR/USD forecast for year-end from 1.17 to 1.15. Previously, we had expected the Fed to leave rates unchanged."
"For next year, however, we maintain our view that the Fed will not tighten monetary policy as aggressively as markets currently expect. Assuming the crisis in the Middle East gradually subsides, as we anticipate, the current inflation shock should also fade over the course of next year, eliminating the need for further rate hikes. In fact, we see a good chance that the Fed wil...