📝 See EUR/USD Moving Back to On A 6-Month View: Rabobank

The ‘higher for longer’ interest rate theme has not been far from the market’s mind all year. For much of 2023 the market has been hell-bent on ignoring the Fed’s guidance that rates are unlikely to be cut before 2024. As the end of the year moves closer, reality has started to impact. Following the last US CPI inflation report, futures were pointing to the first rate cut not coming until March 2024. Reflecting the resilience of the US economy and the pushing back of rate cut expectations, the USD has found some support. That said, the theme of higher for longer rates is not confined just to the US. This week, RBNZ Governor Orr stated that rates needed to stay at a restrictive level for the foreseeable future and altered the Bank’s guidance to suggest that the first interest rate cut would not come until 2025. The RBNZ was the first G10 central bank out of the traps with a rate hike in October 2021, well ahead of either the Fed or the ECB. Through much of this year central bankers and economists have been pondering whether structural changes will make inflation more persistent during the current cycle. This chimes with the theme of next week’s Jackson Hole event which is titled “Structural Shifts in the Global Economy”. While the USD has recently found support from the ‘higher for longer’ rate theme, it has also found buyers on the back as safe-haven flows as the news from China becomes more worrying. We maintain our 3-month EUR/USD forecast of 1.08 and see risk of EUR/USD moving back to 1.06 on a 6 month view before Fed rate cuts make way for a softer outlook for the greenback

- Rabobank