EUR/USD to trade at 1.11 in a month - Danske Bank

We are revising our EUR/USD forecast higher to reflect a material shift in the structural drivers, Danske Bank's FX analyst Frederik Romedahl reports.

Europe's fiscal reform push is beginning to support sentiment

"In our analysis of long-term trends in exchange rate markets, we look at especially three parameters: 1) the real rate parity, 2) the relative attractiveness of the asset market and 3) the outlook for global monetary conditions. In short, the outlook for building block 1 and 2 but potentially also 3) have turned. While a US recession in 2025 is not yet our base case, the probability has risen meaningfully -- now priced at around 60% in prediction markets. This rising risk, alongside Trump's policy stance, poses a growing drag on the structural growth outlook for the US."

"Policies aimed at reducing immigration, cutting federal employment (e.g. DOGE), and weakening productivity dynamics are all negative for long-term US potential growth. This points to narrower real rate differentials ahead -- a fundamental shift that reduces USD support. Simultaneously, there are early but clear signs of capital rotation out of US assets. If this shift proves structural -- particularly a rotation away from the US tech sector -- it would mark a break from the dominant investment narrative of the past decade, with USD-negative implications."

"On the EUR side, Europe's fiscal reform push is beginning to support sentiment. But the more important driver of our revised view is the growing unpredictability of US politics. With the US increasingly at odds with its allies and global institutions, we believe the relative risk premium on US assets is rising -- and over time, that will weigh on the USD. In sum, we revise our EUR/USD forecast profile to 1.11 in 1M (from 1.09), 1.12 in 3M (1.08), 1.14 in 6M (1.07) and 1.14 in 12M (1.06)."