Commerzbank Cuts EUR/USD Forecast Amid Dollar Hike Risks

Commerzbank's Michael Pfister has expressed skepticism about the recent surge in the EUR/USD currency pair, attributing it to reduced expectations of Federal Reserve (Fed) tightening. According to Pfister, the lack of forward guidance from Kevin Warsh does not preclude rate hikes and stronger US labour data could shift expectations back towards tighter policy.

The bank has cut its EUR/USD forecast by two cents across its horizon as perceived dollar hike risks rise, citing uncertainty surrounding Fed actions. Since last week's Fed meeting, expectations of interest rate hikes have been priced out, with the expectation now for 'only' 33 basis points by the end of the year, down from 44.

Pfister emphasizes that today's labour market figures could provide an initial indication of the direction of future monetary policy. Commerzbank economists expect 100,000 new jobs to be created, stronger than the current Bloomberg consensus forecast of +80,000. However, Pfister notes that the USD's reaction will depend not only on the headline figure but also on revisions to previous months' figures and the unemployment rate.