EUR/USD to suffer from strong US growth and weak Eurozone growth – Commerzbank

Economists at Commerzbank discuss the link between growth and the EUR/USD exchange rate.

Higher US inflation or a more hawkish ECB would kill the USD-positive growth story

The US economy seems to be managing a ‘no landing’, i.e. it seems to be able to cope with the interest rate hikes without a slowdown in growth. At the same time, inflation looks set to fall to the Fed's 2% target. High growth without inflation is even better than what economists call a Goldilocks economy. And with the Fed being extremely hawkish at the same time, inflation risks in the US also appear to be low.

Meanwhile, Europe is groaning under near-zero growth, under stagnation. And even those who are as optimistic about the current inflation trend as they are about the US have to admit that the much more dovish ECB could raise inflation concerns in the medium to long term.

As long as this environment persists, EUR/USD will suffer from strong US growth and weak Eurozone growth in particular. Conversely, higher US inflation or a more hawkish ECB would kill the USD-positive growth story. Irrespective of imaginary ‘capital flows’.