📝 Revising EUR/USD Forecast Higher: Commerzbank

There is a significant risk that the US government will succeed in undermining the Fed's independence. Our US experts are taking this into account and therefore assume that the Fed will cut interest rates more sharply than is currently priced in (see also Week in Focus: Fed's independence under attack). In other words, they expect the Fed to bow to political pressure and cut interest rates more than it would otherwise have done. This increases longer-term inflation risks, which is likely to weigh on the dollar. We have even raised our EUR-USD forecast for the end of this year from 1.20 to 1.22, as our US experts see room for even more interest rate cuts than already expected due to the recent clear signs of an economic slowdown. At the same time, tariffs are likely to have an increasing impact on prices, putting the Fed in a dilemma. Rising inflation is another reason why interest rate cuts are likely to weigh more heavily on the dollar than the market currently assumes. - Commerzbank