EUR/USD to avoid a fall below 1.10 amid flattening US yield curve – Rabobank

The USD is the best performing G10 currency in the year to date with a large part of those gains being made since June. Rabobank’s EUR/USD 1.12 target was hit, albeit briefly, at the end of last month. Economists at the bank expect the pair to hit the 1.10 level but do not expect more weakness.

The Fed tightening cycle could be short-lived

“Over the next few months, we expect that the USD will perform well vs the EUR. That said, if the current predictions of the US yield curve are maintained and the outlook for the pace of Fed rate hikes is restrained over the whole of the cycle, this will likely limit the ability of the USD to pursue further broad-based gains throughout the whole of next year.” 

“While the likelihood of move to EUR/USD 1.10 has increased for the first part of next year, the recent flattening of the yield curve does suggest that the USD may not be able to maintain momentum through the whole of next year.”