EURUSD: Diverging interest rate expectations are an overall bearish factor.
EURUSD is still trading within a box-like range. It fell two tenths of a percentage point in the 1.0630s on Monday. After temporarily climbing throughout the European session due to a lack of escalation in the Israel-Iran dispute.
Most experts are pessimistic on EURUSD, however, due to a contrasting. Assessment for the future path of interest rates – a key FX driver – in the United States vs Europe. Which appears to be pushing the pair down as the day develops.
EURUSD is doomed by Diverging interest rates
Many experts predict the EURUSD to continue to fall as interest rates. Which fuel capital flows, remain low. Interest rates in the United States are projected to continue higher than in Europe. Making it a more appealing place to store cash, increasing inflows and demand for the dollar. In the United States, stubbornly high inflation, a robust labor market. And good economic growth are all grounds to maintain current interest rates (5.25%-5.50%).
“It is hard to find any reasons to bet against the dollar,” said Michael Pfister, FX Analyst at Commerzbank, in an interview with Bloomberg News on Monday. “The Greenback has appreciated during the last two weeks as a result of an unexpected increase in inflation. On top of that, we have a strong growth advantage and a very hawkish Fed,” the expert concluded. Pfister believes the Federal Reserve (Fed) will not lower interest rates until December, which is a significant departure from earlier estimates this year, when the Fed was expected to decrease interest rates in June. The Fed’s most recent Summary of Economic Projections (SEP) predicted three 0.25% cuts in 2024.
Disinflation has been stronger in Europe, with decreased economic growth.
EURUSD is still trading within a box-like range. In contrast, disinflation has been stronger in Europe, with decreased economic growth. Furthermore, officials at the European Central Bank (ECB), which sets base lending rates for the entire region (now at 4.5%), appear more unanimous in calling for a decrease in June, as opposed to their Colleagues across the Atlantic.
“To be honest, I am often surprised that the Euro is not much weaker,” writes Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, in a note released on Monday.
“Over the weekend, news services previewed an interview with François Villeroy de Galhau, Governor of the Banque de France. According to these reports, Villeroy reiterated the ECB Governing Council’s decision to lower interest rates at its meeting on June 6, says Leuchtmann.
How low can the euro go? When asked if he expected EURUSD dropping all the way to parity, Pfister said, “Not quite as low as parity, but we see EURUSD falling to 1.0400.”
