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With inflation receding faster in the US than Europe, economists at UBS expect the Dollar to weaken.

More investors to seek yield in Europe rather than the US

One key consequence of the steady retreat in global inflation will be a weaker US Dollar as price pressures ease faster in the US than in Europe. 

Consumer energy subsidies in Europe meant inflation was slower to rise but will also be slower to fall. In turn, this should mean that interest rate differentials with the US will narrow – leading more investors to seek yield in Europe rather than the US. 

We forecast EUR/USD to rise to 1.18 by June 2024.

 

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