The EUR/USD rebound went into reverse at the start of 2024, and we expect further underperformance of the pair from current levels in the coming months. We think the mix of currency drivers would be more negative for the pair in 2024, pushing EUR/USD back towards 1.05 in 12M. EUR/USD should continue to follow the relative policy outlook between the ECB and the Fed in our view. Our economists expect both the Fed and the ECB to start cutting
rates in mid-2024 but believe the Governing Council would ease more aggressively, pushing EUR/USD lower.
In addition, we note that growing risk aversion at the onset of past US recessions tended to weigh on EUR/USD in recent years. The risk of a Trump presidency could further fuel fears about a global trade war in a blow to the EUR. The EUR could also be vulnerable to a renewed widening of peripheral yield spreads to Bunds.
rates in mid-2024 but believe the Governing Council would ease more aggressively, pushing EUR/USD lower.
In addition, we note that growing risk aversion at the onset of past US recessions tended to weigh on EUR/USD in recent years. The risk of a Trump presidency could further fuel fears about a global trade war in a blow to the EUR. The EUR could also be vulnerable to a renewed widening of peripheral yield spreads to Bunds.
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