The Euro will benefit from fewer interest rate cuts compared to the Fed – DBS

EUR/USD is poised to move to a higher 1.10-1.15 range by 2025, note DBS FX analysts Philip Wee and Chang Wei Liang.

To move into a higher range of 1.10-1.15 by 2025

“The European Central Bank (ECB) is unlikely to match the Fed’s pace of interest rate cuts. By the end of September, the ECB’s deposit facility rate was 150 bps above its 2% inflation target, compared to the Fed’s 275-300 bps.

“The ECB has estimated an inflation-adjusted neutral rate of 1-2%, higher than the Fed’s 0-1% rate. The ECB’s easing is based on its expectations that inflation will ease amid record low unemployment. However, the Fed is cutting rates to avoid a further cooling of the labor market – something it believes is no longer necessary to meet its inflation target.”