The U.S. economy is expected to slip into a recession next year, prompting the Fed to start cutting interest rates before the ECB and causing the dollar to weaken versus the euro, LBBW Research said.
A recession should help U.S. inflation approach the 2% mark in 2H, and “against this backdrop, the Fed is likely to initiate a phase of interest rate cuts as early as summer 2024,” it said.
LBBW expects the ECB to start cutting rates next autumn. It expects EUR/USD to remain stable at 1.08 in 1Q and 2Q before rising to 1.10 by the end of next year.
Danske Bank Research is looking to buy EUR/USD on any dips in the near term due to the impact of any weaker U.S. economic data.
“The recent significant easing of financial conditions, the most substantial monthly decrease since the April 2020 Covid shock, suggests a favorable environment for EUR/USD in December,” Danske Bank Research said.
“We aim to counter the recent downward move, and hence we still see upside potential for EUR/USD in the short term.”