EUR/USD to edge higher if the Fed and the ECB start their rate-cutting cycles at the same time – Commerzbank

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, analyzes what synchronized Fed and ECB rate cuts would mean for EUR/USD.

The Fed has typically moved its key rate much more and with greater amplitude than the ECB

Anyone managing USD and EUR risk has to rely on experience to make forecasts. And experience shows that the Fed is the more ‘active’ of the two central banks. It has typically moved its key rate much more and with greater amplitude than the ECB.

Even its last interest rate cycle from 2015 to 2018, whose amplitude seemed puny compared to the 1990s and early 2000s, is no exception. The ECB skipped this rate cycle altogether.

This means that if the Fed and the ECB start their rate-cutting cycles at the same time, ceteris paribus, this is an argument for higher EUR/USD rates. Until it becomes clear what the Fed's and ECB's rate cycles will look like this time around.