Euro Forecast Lowered at Deutsche Bank

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Forecasts for the euro are lowered at one of Europe's biggest banks following the political upheaval in the United States.

Deutsche Bank was quick off the blocks to lower its forecast for the Euro following Donald Trump's win in this week's election.

Trump's win was accompanied by a Republican sweep of Congress, which represents the most bullish outcome for the Dollar possible. (The House count is not yet complete, but 90% likelihood it will be Republican)

"We are holding on to our long-standing short EUR/USD view given the asymmetric dollar positive risks we have been highlighting throughout this year and we move our year-end EUR/USD forecast down," says George Saravelos, Head of FX Research at Deutsche Bank.

"A potential unified government under President Trump would have the greatest degree of freedom for fiscal policy and would likely be the most dollar bullish outcome," he adds.

The Euro was one of the biggest FX losers of the 'red sweep', with investors fearing Eurozone exports to the U.S. would be materially impacted by Trump's promise to raise import tariffs.

Saravelos says the risks of a 50 basis point rate cut at the European Central Bank are rising, given the new headwinds facing the Eurozone.

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To be sure, there are uncertainties left to contend with, particularly relating to where Trump's emphasis falls, i.e. is he going to go after tax cuts or go hard on tariffs early on in his term?

Saravelos says there are still uncertainties ahead, as much of what Trump promised might not necessarily materialise.

"The US election outcome in our view is historical in nature; it has the capacity to create a regime shift in markets whereby correlations break down due to highly idiosyncratic and divergent shocks between the US and the rest of the world," he explains.

Deutsche Bank lowers its Euro to Dollar forecast to 1.05.