Here are the forecasts from Deutsche Bank for the years ahead:
Deutsche Bank’s reasoning is as follows.
Key medium-term USD bearish drivers:
- Supportive EU vs. US fiscal stance: thanks to German fiscal policy.
- Valuations: Purchasing power parity in the 1.25-1.30 range acts as medium-term anchor for EUR/USD amid geopolitical uncertainty.
- US asset risk premium & weaponing risk: Persistent global diversification away from USD assets, driven by US economic policy unpredictability and concerns over sanctions.
- US cyclical slowdown: A weaker growth trajectory to achieve medium-term inflation objectives, with added drag from unpredictable policymaking.
Short-term outlook:
- YE-25 forecasts remain conservative.
- The likely dovish ECB reaction function in the near-term will constrain the widening in short-term EU-US interest rate differentials plus broader uncertainty on US policy path in coming months.
Risks:
- A faster US climbdown on aggressive trade policy and a more growth-supportive US budget bill is likely to slow down the dollar downtrend, while a continued erratic shift in trade policy combined with larger than expected fiscal tightening is likely to lead to accelerated dollar downside.
This article was written by Eamonn Sheridan at www.forexlive.com.