EUR/USD: 2 more hikes from the Fed, 3 more from the ECB; EUR/USD to rise – Nordea

Nordea Research summarizes its expectations for the Fed and ECB policy trajectories. Nordea targets EUR/USD at 1.10 by year-end.

“We expect the Fed to continue hiking in 25bp increments in both May and June, leaving the peak fed funds rate at 5.25% to 5.50%. We do not see rate cuts until well into 2024.

We think inflation worries will outweigh any financial stability concerns with the ECB, and see the central bank raising rates by 25bp in each of the following three meetings, leaving the deposit rate at 3.75%,” Nordea notes.

Longer bond yields will likely continue to experience volatility, but we see higher yields ahead in the coming months. The bigger-picture direction for EUR/USD remains upwards,” Nordea adds.

Meanwhile, Danske Research maintains a sell-on-rallies bias for EUR/USD.

“Following continued risk-on and a market consensus settling on a
single Deutsche Bank CDS trade having sparked Friday’s panic-trading
EUR/USD is now back at the 1.0850 level. As argued in recent editions we
continued to see some near-term topside potential in the cross on
fading bank concerns and a relative ECB-Fed repricing potential,” Danske
notes.

“That said, we still think clients should look at strategic selling opportunities stemming from this rally,” Danske adds.

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