Danske Bank forecasts short-term dollar recovery, but sees long-term weakening

uS Dollar

Despite its current strength, the US dollar may face challenges in the long term. Danske Bank analysts predictshort-term dollar recovery, however, it is expected that it will continue to lose ground in the future. As confirmation of this trend, the bank predicts the exchange rateEUR/USD at 1.22 for 12 months.

The main factor influencing the long-term forecast is the expecteduS economic growth slowdownin combination withabsence of a significant surge in inflation. In this regard, Danske Bank expects that the US Federal Reserve System (FRS) will begin to ease its monetary policy. Forecastedtwo interest rate cuts by the End of 2025 and three more cuts In 2026. This, in turn, graduallywill reduce the dollar's yield advantage, which will make it less attractive to investors.

GBP/EUR forecast: further decline

Danske Bank also presented a forecast for the GBP/EUR currency pair. Bank analystscontinue to forecast a depreciation To 1.15 within 6–12 months. The main reason for this forecast isuK's fundamental Vulnerability, which is becoming more and more obvious in the conditionsa more hostile global investment environment.

UBS's contrasting View on GBP/USD

While Danske Bank is pessimistic about the pound sterling versus the euro, UBS is stickingpositive outlook on GBP/USD. UBS Analystsforecast the rate to rise to 1.38 at the end of 2025 with a further increase to 1.40 in 2026.

However, UBS also emphasizes thatthe pound will be at risk if the Bank of England accelerates the pace of interest rate cuts. That's because faster rate cuts could undermine the pound's appeal to investors seeking higher yields.

Key conclusions:

  • Danske Bank:Short-term dollar recovery, long-term weakening. EUR/USD to 1.22 within 12 months. Decrease in GBP/EUR to 1.15 within 6-12 months.
  • UBS:Positive forecast for GBP/USD to 1.38 at the end of 2025 and 1.40 in 2026. Risk for the pound with accelerated rate cuts by the Bank of England.

In conclusion, forecasting exchange rates remains a complex task depending on many factors. Investors should closely monitor economic developments and consider various perspectives before making any investment decisions.

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