The US Dollar has strengthened this week. Economists at Rabobank analyze Greenback’s outlook.

Politics can be expected to creep back into the picture

The USD will clearly be buffeted by the ‘will they, won’t they’ debate around rate cut decisions this year. On top of that, politics can be expected to creep back into the picture.

Trump’s easy win in the Iowa caucus this week appears to increase the odds that the US presidential election will be another race between himself and Biden. 

Another Trump term in the White House would raise questions about Nato which could have serious implications for European defence spending. The US could also be less of a partner in issues related to climate change while the issue of tariffs on some European goods could again be a feature. This would come at a time when European national budgets have been stretched by Covid support and when growth is softening. These risks could add to downside pressure on the EUR vs. the USD.

We see risk of EUR/USD dipping to 1.05 on a thee-month view mostly on the back of the market pushing back its expectations regarding Fed rate cuts