Extract via Capital Economics on their EUR/USD view:
- We expect a sharp depreciation of the euro on the back of further deterioration in economic activity
The USD is likely to appreciate, according to Capital Eco, citing their pessimistic outlook for major developed market economies (US and Eurozone included) which suggests to them that the USD will appreciate against most currencies, taking advantage of a sentiment that will go towards risk aversion.
- we expect the euro to return to parity by the end of 2023
Another reason why Capital Eco like the USD is due to the AI/tech boom:
- “We believe this is increasingly reminiscent of the dotcom era of the late 1990s, and we now expect a similar bubble to form in the US stock market over the next few years. … the dotcom era has been accompanied by a substantial rise in the dollar, partly driven by capital inflows related to the stock market boom, so if we’re right that the AI euphoria will continue , this could help the dollar rebound – and, possibly, stay stronger for longer than we currently expect.”