Euro: Medium-term upside case versus Dollar – Nordea

Nordea’s Jan von Gerich notes that EUR/USD is stuck between 1.15 and 1.16 despite strong US data and favourable US interest rate differentials. He argues the Dollar has underperformed relative to historical patterns and still expects a higher EUR/USD in the medium term. Key risks are stronger US growth, a prolonged Middle East war and a more hawkish Fed.

Dollar strength seen as underperforming setup

"While the euro-area economy has been struggling a bit, US data has mainly been strong. It is thus no surprise that EUR/USD has not risen and rather resides between 1.15 and 1.16, close to its lowest levels in two months."

"We still argue that while the USD has been well-supported in the past few months, it has not performed as well as it would have historically in an environment of favourable interest rate differentials, outperforming US economy and elevated geopolitical tensions."

"We thus still believe in a higher EUR/USD in the medium term."

"The main risks to this view are continued strong performance in the US economy vs. area, a prolonged war in the Middle East and a hawkish Fed, possibly including rate hikes."

"In the latter scenario, the USD would remain clearly stronger compared to our baseline."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)