David Kohl, (Chief Currency Economist, Julius Baer) / US growth superiority continues for longer than expected. The economic headwinds caused by measures to contain the spreading of the coronavirus are stronger for the Eurozone than for the US and support safe-haven currencies. We have adjusted our 3-month euro forecast down while being slightly more constructive for the JPY.
- ZEW economic expectations for the eurozone declined to 8.7 in February after 26.7 in January.
- US Empire Manufacturing survey rose to 12.9 in February after 4.8 in January.
- We revise our 3-month EUR/USD forecast to 1.08 from 1.10 and USD/JPY to 109 from 110.
After a brief episode of positive economic data surprises in January, a wide range of eurozone economic indicators have disappointed expectations and even declined outright.
On Tuesday, the expectations component of the ZEW survey was considerably lower than in the previous month and lower than the expected consolidation, signalling a deteriorating economic outlook. In contrast, US economic indicators are doing much better, with the Empire Manufacturing survey for February rising sharply, beating expectations by a wide margin. A superior US economic backdrop in the last year has already served as a reliable guide for USD appreciation against the EUR.
We adjust our expectations that US superiority will peter out in the near term and have consequently adjusted our 3-month EUR/USD forecast to 1.08, signalling a cautious short-term stance for the EUR and favouring the USD. The economic headwinds caused by measures to contain the spreading of the coronavirus will be felt more pronounced in the eurozone than in the relatively closed US economy.
The resulting postponement of a broad economic recovery pushes the expected peaking of the USD into the second half of 2020. The overall riskier backdrop justifies a slightly stronger JPY, which profits despite a soft Japanese economy from its safe-haven characteristics. We have adjusted our USD/JPY outlook to 109 from 110.