Current USD levels unlikely to be fully reflecting the end of Fed rate hikes – Commerzbank

The short burst of USD strength that pushed EUR/USD to levels below 1.0250 the day before yesterday seems to be over again. Economists at Commerzbank expect USD weakness to remain in place.

Compared with levels at the start of the month, considerable USD weakness will remain in place

“Slowly it is becoming clear that compared with levels at the start of the month considerable USD weakness will remain in place.”

“If a rate hike cycle becomes foreseeable the corresponding currency benefits. In a similar manner it is a negative argument if the market focusses on the fact that the cycle seems to end. In particular if afterwards (as in the case of the Fed) a rapid reversal (i.e. rate cuts) is then expected.”

“At the moment FX traders are likely to be torn between the continued hawkish comments by Fed members and the prospect of what the Fed will do in 2023. I therefore consider it to be unlikely that the USD levels at which the market is currently settling are already fully reflecting the end of Fed rate hikes.”