Economists at Commerzbank analyze the EUR outlook ahead of the decisions of the major central banks next week.

How long the EUR-positive effects will dominate and at which points the EUR-negative arguments will become more important?

We expect the Fed to cut interest rates quite soon (the first ones expect this for around the end of the year), but not so from the ECB. Medium-term the ECB’s monetary policy should therefore be more attractive from the FX market’s point of view.

At the same time, we expect that the ECB’s monetary policy course will be such that (a) a fall in core inflation to levels close to the 2% target cannot be expected longer term and that (b) inflation risks in the Eurozone will not principally disappear, which justifies an inflation and inflation risk premium which could put sustainable pressure on the Euro.

We admit openly: our current projections, which assume that the EUR-positive factors will dominate until the end of the year, is more the result of gut instinct than rational calculation. Please read our EUR projections (1.14 at the end of 2023, 1.08 at the end of 2024) with some caution in this respect!