The last month has seen a slowdown in the EUR rally that had been ongoing since September. Economists at Danske Bank have revised their estimates slightly, but still expect the euro to remain above parity against the US dollar. They have long argued that the euro should be lower against the dollar due to the differences in terms of trade, real rates, growth prospects, and relative unit labour costs. Now, however, they believe that the market is beginning to realise that financial conditions must tighten and that this will lead to a further decline in the euro.
This is evidenced by the fact that Eurozone equities have started to underperform their peers, indicating that the peak of the EUR/USD rate may have been reached. Despite this, the economists at Danske Bank are still expecting the euro to remain above parity, as they believe that further shocks to the energy and real rate sectors would be required to return the rate to the September lows.
Their revised forecast for the EUR/USD rate is 1.06 for the next month, 1.04 for the next three months, 1.02 for the next six months, and 1.02 for the next twelve months. This indicates that the euro is likely to remain relatively stable against the dollar in the short term, but could weaken further in the longer term if the financial conditions continue to tighten.
Overall, the euro has been on a strong rally since September, but this seems to be slowing down. Economists at Danske Bank are expecting the euro to remain above parity, but they believe that further shocks to the energy and real rate sectors could lead to a return to the September lows. The market is beginning to realise that financial conditions must tighten, which could lead to a further decline in the euro.
It is clear that the tide is turning for the EUR/USD rate, and it is likely that the euro will remain relatively stable in the short term, but could weaken further in the longer term. This could have significant implications for businesses and investors who are looking to trade in the currency markets. It is important to keep an eye on the EUR/USD rate and be aware of any changes that could affect the value of the euro.
