Economists at Rabobank discuss EUR/USD outlook ahead of Fed and ECB meetings.
A ‘hawkish hold’ in policy rates should be USD supportive
The market is already priced for two more 25 bps rate hikes from the ECB this cycle. This suggests that for the EUR to make sustainable gains on the back of this week’s policy meeting, the hawkish signalling would have to be surprisingly strong.
In our view, the ECB may keep its 2025 inflation projection slightly above target in order to chase away market forecasts of rate cuts early next year. This should be broadly EUR-supportive. However, since we also expect a ‘higher for longer’ theme from the Fed this week and a ‘hawkish hold’, we expect that the EUR may be hard-pressed to sustain gains vs. the greenback.
Despite the recovery in EUR/USD above 1.07 at the end of last week, we maintain our H2 target of EUR/USD 1.06.
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