ING: The USD
Our base call assumes that the Federal Reserve stays hawkish in the first quarter, as decent US growth and above-3% inflation keep money markets pricing in the threat of an extended tightening cycle. That turns in the second quarter, when energy-driven base effects drop out of headline inflation and a return to the Fed's 2% inflation target sees short-dated US rates move meaningfully lower. That timing also suits events in Europe. French budgetary politics look set to keep a risk premium in the euro ahead of April's elections. We therefore see EUR/USD trading offered in a 1.10-15 range over the next four to five months. From the second quarter, however, softer US rates, moderating energy prices and clarity on French politics could trigger a gentle recovery in EUR/USD towards 1.18 by year-end 2027.
Our base call assumes that the Federal Reserve stays hawkish in the first quarter, as decent US growth and above-3% inflation keep money markets pricing in the threat of an extended tightening cycle. That turns in the second quarter, when energy-driven base effects drop out of headline inflation and a return to the Fed's 2% inflation target sees short-dated US rates move meaningfully lower. That timing also suits events in Europe. French budgetary politics look set to keep a risk premium in the euro ahead of April's elections.
We therefore see EUR/USD trading offered in a 1.10-15 range over the next four to five months. From the second quarter, however, softer US rates, moderating energy prices and clarity on French politics could trigger a gentle recovery in EUR/USD towards 1.18 by year-end 2027.