EUR/USD to sink toward 1.08 on the back of higher interest rate differential – Nordea

We have likely yet to see the bottom in EUR/USD as rising commodity prices due to Putin’s war in Ukraine will lead to higher price pressure, according to economists at Nordea. Furthermore, rates will remain in favour of a lower EUR/USD.

Energy prices will hurt growth in the euro area more than in the US

“The repercussions for energy prices are most severe in Europe due to its energy dependency on imports. The US is in comparison energy self-reliant and a net petroleum exporter. It is also worth noting that European households spend a higher proportion of their income on heating/gas/electricity compared to American households. Hence, the economic ramifications will be more pronounced for the European economies than in the US.”

“A hawkish Fed compared to a more uncertain ECB argues for a lower EUR/USD rate.”

“We still expect EUR/USD to come to 1.08 in the coming months on the back of a higher interest rate differential.”

“The USD enjoys the benefits of its status as the world’s reserve currency and it being a save heaven in these troubling and uncertain times.”