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Commerzbank cuts EUR/USD forecast as Fed hike bets cool

The bank said the market has priced out roughly 44 basis points of expected end year hikes, now seen at 33, with stronger US labor data and revisions likely to move the USD higher.

Reported · Written up by our desk · Major Pairs

Commerzbank analysts led by Michael Pfister said EUR/USD has climbed as expectations for Federal Reserve tightening have been scaled back, but they questioned whether the move is justified.

Pfister pointed to a shift in market pricing, noting that the expected degree of Fed hikes by year end was reduced from about 44 basis points to about 33 after last week's Fed meeting, which he said appears to be a key driver of the pair's recent strength.

The bank argued that the absence of forward guidance does not rule out rate changes, because any shift would be driven by incoming data rather than pre-announced signaling.

Commerzbank said stronger US labor market figures could quickly alter rate expectations, citing its view that the report could show 100,000 new jobs, above the roughly 80,000 Bloomberg consensus, while adding that the dollar reaction would depend on revisions and the unemployment rate. It cut its EUR/USD forecast by two cents across its horizon as perceived Dollar hike risks increased.

Latest closeEUR/USD 1.152 ▼0.3%

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