Fed Credibility Boost Supports Dollar

Commerzbank's Thu Lan Nguyen says the Federal Reserve's unanimous rate hike in September has temporarily restored its credibility, supporting the US Dollar. This has led to a downward revision of the EUR/USD year-end forecast from 1.17 to 1.15.

However, the bank expects both US and euro area rate expectations to be revised down over 2027, weighing more on the US Dollar than the Euro. As a result, they anticipate EUR/USD to gradually rise.

The Fed is expected to deliver one additional rate increase before year-end, making it unlikely for major doubts about its credibility to resurface in the near term.