EUR/USD: Fed’s “higher for longer” interest rate to drag the pair down – Rabobank

EUR/USD dropped to its lowest level since January 9 at 1.0667 on Tuesday. Economists at Rabobank maintain their three-month EUR/USD forecast of 1.06. 

Fed’s rates unlikely to shift lower

“On the back of the remarks from Powell yesterday, Friday’s labour data release and our ongoing concerns surrounding the impact of tight labour market conditions, we have revised up our forecast for the top of the target range for the Fed funds rate to 5.5% from 5.0%. This underpins our expectation that EUR/USD will dip back to 1.06 on a three-month view and potentially to 1.03 in six-months.” 

“Given that the market is positioned long EUR, we expect the upside for the EUR to remain capped.”