Economists at ING expect the Fed to cut rates by 100 bps and US-Eurozone divergence to drive EUR/USD to a 1.20 peak. However, some risks – including the US debt ceiling stalemate – can keep the Dollar afloat in the short term.
Dollar underperformance in the latter part of the year
“The US-Eurozone and Fed-ECB expansions in the latter part of this year and early next year have led us to revise our EUR/USD forecast higher: we now expect a peak of 1.20 in 4Q23/1Q23. Backwards to 1.15 in 2024 as ECB begins to ease.”
“The short-term outlook is admittedly less of a clear-cut bearish story for the dollar. If US banking pressures could hurt the dollar through the rate cut channel in the long term, it could hurt risk sentiment and keep it afloat in the short term by increasing demand for safe havens. If the US debt ceiling impasse causes enough volatility in financial markets, it could lead to a dramatic increase in demand for the dollar.”
