Thursday’s inflation data will likely be key to determining the near-term outlook for the dollar and U.S. rates, though it won’t be a “game-changer,” Danske Bank Research said.
“We do not expect today’s CPI release to be a game-changer, as we think the figures broadly will align with consensus.”
The relatively loose financial conditions around the end of 2023, which helped push EUR/USD above 1.10, could very well tighten within the next couple of months, Danske Bank said, adding that it considers the euro remains a sell against the dollar from a strategic perspective.
Deutsche Bank said the dollar is pricing in the biggest interest-rate cuts of all G10 currencies, leaving very little safe-haven premium and suggesting the currency has room to strengthen.
Even as the Federal Reserve cuts interest rates, the dollar is still likely to remain a higher-yielder among major currencies, suggesting the dollar should rise near term, Deutsche Bank said.
“We see the risks skewed towards a stronger dollar for the first few months of 2024 with EUR/USD revisiting 1.05.”