Economists at MUFG Bank discuss the EUR/USD outlook.

Further Dollar gains over the short-term are likely

“With inflation set to fall further over the coming months, the prospects for Eurozone households remain much better. So we see no reason for a sustained deterioration in sentiment to warrant a more pronounced retracement of the EUR/USD move higher.”

“Our EUR/USD year-end target of 1.1500-1.1600 is based on the Fed’s tightening cycle having ended this month and then the Fed cutting by year-end.” 

“Dallas Fed President Logan was very clear yesterday that the data to justify a pause in June wasn’t evident yet so certainly if the US rates market continues to price a greater probability of a June hike, then further Dollar gains over the short-term are likely. So the potential for EUR/USD downside is certainly more from the Dollar side than the Euro.”