Economists at Commerzbank discuss ECB and Fed outlook and its implications for the EUR/USD pair.

The ECB appears to be more hawkish than the Fed

“Even if the ECB (as our ECB watcher expects) will only raise its key rate once more (in June), the EUR is likely to appreciate in the second half of the year if (as we expect) it becomes foreseeable that the Fed will cut its key rate, but the ECB will remain rock-solid on its ‘terminal rate’.”

“In the long run, however, EUR strength is unlikely to be sustainable. According to our economists, the ECB is likely to succeed in controlling inflation to a lesser extent than the Fed in the long term. Regardless of which of the two central banks offers the highest real interest rate on its respective currency, this is likely to result in the Euro suffering from an increased inflation risk premium.”