By Samuel Indyk
Investing.com – Analysts at Nordea say they expect a return to strength for the USD after weakening materially for the last 9-12 months.
Nordea says that the weakening has been driven by an “exorbitant money printing from the Federal Reserve”. The USD also commonly weakens when the global economy rebounds in tandem. However, the economy is now set to reap the growth rewards of massive money printing and wide scaled fiscal stimulus.
“The US is likely to outperform all peers growth-wise this year, which over time usually leads to a stronger USD versus other currencies as a result of the side-effects of a stronger growth pace,” Nordea analysts Jan von Gerich and Andreas Steno Larsen said in a research note.
“First, USD bonds may continue to yield better than most peers, second the Fed is more likely to respond to strong growth rates via a slightly tighter policy, maybe via a tapering discussion already this summer.”
With that in mind, von Gerich and Larsen say this could lead to a reversal in EUR/USD towards the second half of the year.
“We find it likely that we will end 2021 on clearly lower levels in EUR/USD compared to current spot, as the USD interest rates are simply more alive than EUR dittos, not least as the ECB seemingly wants to keep printing more into the economic rebound during the spring and early summer,” von Gerich and Larsen said.
“We target 1.15-1.16 in EUR/USD.”
Other G10 currencies
Nordea remain upbeat on GBP as the vaccine rollout provides evidence that it is possible to thrive outside the EU. The pair see EUR/GBP dropping to 0.8400 by the end of the year.
On Scandi currencies, von Gerich and Larsen say collapsing Swedish core inflation and a strong dollar ought to undermine the SEK during H2 2021, while they remain more upbeat on the NOK.