Currencies Outlook

The widening interest rate differentials between the dollar and the euro, paired with upward pressure on commodity prices, increase the risk of a further decline in EUR/USD…

Growth differentials point to a decline in the euro against the dollar and pound. Furthermore, despite the prospect of currency interventions by the Bank of Japan, we do not expect a trend reversal of the yen against the euro and dollar in the short term.

We expect U.S. economic growth to remain on the high side for some time to come, preventing inflation from falling much further. The latter mainly because of a tight labor market and rising commodity prices. As a result, we think the Fed will be more cautious with rate cuts than the ECB, which is positive for the dollar...