📝 Lowering EUR/USD Year-End Forecast to 1.02: ING FX Strategy

Back in June, we presented four such scenarios in which our baseline (Scenario 2) saw EUR/USD staying weak this summer, but gently rebounding to 1.08 by year-end as the market’s attention turned more fully to the 2023 Fed easing cycle. Given the recent reduction in Russian gas supplies to Europe, and with our eurozone team very concerned by European growth prospects this winter, we now feel that Scenario 3 looks a more likely baseline scenario – and felt increasingly uncomfortable with a ‘bullish’ EUR/USD forecast for year-end.

A cut in our EUR/USD forecast profile is now more consistent with our Rate Strategy Team’s view on the eurozone/US two-year swap spread divergence. It has this spread continuing to move against EUR/USD into year-end, with Fed easing expectations only starting to make their mark in 1Q23.

Combining macro, monetary policy, valuation and geopolitical views together, it now feels like the right time to take 4-5% off our EUR/USD forecast profile curve. Please find our new set of EUR/USD forecasts in the table below. - ING FX Strategy

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