What seems clear is that at this point, major currencies (and EUR/USD in particular) are very sensitive to changes in short-term rate differentials, probably because there is so much uncertainty around the bigger picture.

We expect the gap between ECB and Fed rates to continue narrowing in the second half of this year and into 2024, and the 1-year rate differential seems set to narrow further than it did in 2020 – and it dragged EUR/USD above 1.20 that time.

Even if we see rate convergence, it seems unlikely a new major Euro uptrend will start without stronger growth.