The US Dollar may enjoy a brief rally in the coming months, but in the bigger picture, EUR/USD will head higher, economists at Nordea report.

USD to enjoy a brief rally as financial conditions tighten

“We believe EUR/USD will periodically decline to 1.03 until the summer as the Fed and other central banks continue raising rates more than previously anticipated to tighten financial conditions – implying renewed periods of risk-off, an environment in which the USD should thrive.”

“Looking longer out, we still see a weaker USD. We expect USD vs other G10 rate differentials to move broadly sideways after the summer until year-end and diminish longer-out.”

“Overall, we believe global factors are in favour of a somewhat weaker USD in the long term and see EUR/USD at 1.15 by the end of next year. However, with higher rates than previously anticipated, recession risks increase. Thus, the USD could be a comeback kid sooner than we currently anticipate, after all.”