Commerzbank’s Economists Lower Fed Forecast and Predict USD Weakness in the Medium Term
Commerzbank’s economists have made significant revisions to their Fed forecast, lowering it more than their US inflation forecast. Additionally, they are slightly reducing ECB interest rate expectations and significantly lowering their inflation forecast, as noted by Commerzbank’s Head of FX and commodity research, Ulrich Leuchtmann.
According to Leuchtmann, the recent USD strength was based on the perception of a structural US growth advantage and active US monetary policy. However, with the expectation that this perception will be eroded by actual developments in the coming quarters, a USD weakness in the medium term is anticipated.
Furthermore, the previously Euro-negative arguments, such as high eurozone inflation rates and relaxed ECB monetary policy, are expected to weaken with a more moderate eurozone inflation forecast. This shift in dynamics leads to the prediction of a significant rise in EUR/USD, with levels around 1.14 possible by mid-2025.
Looking ahead to the second half of 2025, the economic landscape could change once again. A potential resurgence in the US economy may lead to doubts about the Fed’s ability to cut interest rates further, possibly sparking discussions of interest rate hikes. This could also prompt a reassessment of the ECB’s monetary policy by the market.
Analysis:
In essence, Commerzbank’s revised forecasts suggest a shift in the USD’s strength towards weakness in the medium term, leading to a potential rise in the EUR/USD exchange rate. This change could impact various aspects of the global economy, including trade balances, investment strategies, and currency markets. It is essential for individuals and businesses to stay informed about these developments to make informed decisions regarding their finances and investments.