EUR/USD to trade above 1.25 next year – Nordea

The European Central Bank (ECB) will boost its asset purchases in December, while yield curve control by the Federal Reserve (Fed) now looks less likely. Economists at Nordea see a clear risk of EUR/USD trading above 1.25 in 2021 as USD weakness is likely to be broad-based against most peers including Scandies.

Key quotes

“The USD level could be a focal point for the Federal Reserve during 2021 as the USD remains super strong compared to historical averages. A weak USD could be one way of helping inflation higher in the US, why the continued asset purchases from the Fed could work to weaken the USD over time. If we get a synchronized global recovery in 2021 as we anticipate, it usually also leads to a weaker USD against most peers.” 

“The ECB has been decently firm in its defence of 1.20 in EUR/USD, why we don’t anticipate that the ECB will allow EUR/USD above such levels until the recovery is more profound than now.” 

“The ECB decision to widen the PEPP in December should also work against the EUR in the short-run, why we keep a target of 1.15-1.17 in EUR/USD over the next one-two months before a substantial move higher during 2021. Scandies usually thrive versus both EUR and USD when the USD cycle turns negative as we anticipate in 2021.”