Weekly Eurozone – USD lower on a more positive US sentiment and ECB rate cut expectations

by: Georgette Boele

The US dollar remained under pressure until the FOMC decision driven by weaker economic data and expectations of loose monetary policy for longer. Although there was no major change in the FOMC statement, which indicated that the Fed tapering was not cancelled, it still led to a turn in the dollar. This is because the market was positioned for a very dovish statement and as it did not change a “Buy-the-Rumour, Sell-the-Fact” market reaction was seen. Since then the USD has recovered further versus the EUR, because eurozone inflation data surprised on the downside. We have changed our ECB view and now expect a refi rate cut as well as stronger guidance at the December meeting (see above). A combination of a dovish ECB and an improvement on the US economy point to downside risks to our EUR/USD year-end target of 1.35. For the longer term, we remain confident about a stronger USD versus the EUR based on attractive USD valuation, higher US yields and better US economic fundamentals.

 

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