Wall Street strategists are rejiggering their currency recommendations after the euro rose to its highest against the US dollar since March 2022.
Deutsche Bank and Nomura both say the euro has more room to run after a five-day rally, following softer-than-expected US inflation data released Wednesday that led traders to cut bets on Federal Reserve rate hikes.
George Saravelos, global head of FX research at Deutsche Bank, recommends taking a long euro position against the dollar with a target of 1.15 by year-end, according to a note Wednesday. While he said he’s been bullish on the euro throughout the year, he took profits in May, waiting “for more confirmation that dollar drivers are turning bearish.” The euro is trading at 1.11 midafternoon Wednesday.
“Today’s US inflation print is the last piece of evidence we have been waiting for to recommend going long EUR/USD again,” Saravelos wrote in a note after the data release. Going forward, “a confirmation that the US disinflation process is underway in soft landing conditions is for us the most important macro variable for the rest of the year.”
Nomura also sees strength ahead for the euro. Strategists Craig Chan, Jordan Rochester, and Yusuke Miyairi recommend a long EUR/USD trade with a target of 1.14 by the end of September, they wrote in a note. That compares with a previous target of 1.12 by end of August.
In 2021, rising energy prices boosted inflation and helped turn the Fed hawkish, which supported the dollar, they wrote. “This time, we expect the opposite to happen, i.e. low or falling energy prices, disinflationary trends and the potential for a much less hawkish Fed, with potential rate cuts next year.”
The June CPI data sent a Bloomberg gauge of the dollar to its lowest level Wednesday since April 2022. The euro, boosted partly by its proximity to a booming Swiss franc, rallied 1.1% against the greenback.
--With assistance from Robert Fullem.
