The USD is likely to remain well supported until the market has the confidence to move back into higher risk assets. In our view, this suggests that the USD is set to find support on safe-haven demand even as the US economy slows. As a result, EUR/USD could remain lower for longer.

Our forecasts for the Eurozone indicate technical recession for H2 and a slow recovery next year. The backdrop suggests scope for further downside pressure for the EUR. On the margin, rising concerns about the fiscal pledges of Italy’s right-wing government could also become a EUR negative factor since this has the potential to create tensions with Brussels going forward.

Having breached our former 1.06 target, we have revised our forecasts lower and now expect EUR/USD to move to 1.02 on a three-month view and remain lower for longer into 2024.