EUR/USD has recently faced renewed headwinds, pushing the cross back below 1.10. Economists at Danske Bank maintain their strategic case for a lower EUR/USD.

USD strength in store

“In line with market expectations, we think the Fed has delivered its last rate hike for this hiking cycle. However, we think the current 3x25 bps rate cuts priced for the rest of the year seem too aggressive. If we are right in this call, that will add some USD support in H2. For the ECB, we think there are three 25 bps rate hikes left, bringing the policy rate up to 4%.”

“We maintain the strategic case for a lower EUR/USD based on relative terms of trade, real rates and relative unit labour costs. Despite the impending Fed pause, we see the prospect of the USD finding further near-term support as we expect the Fed to hold rates steady into 2024. Furthermore, we think the outlook of the US economy looks less gloomy.”

“We continue to forecast the EUR/USD cross at 1.03 in 6-12M.”