Economists at Crédit Agricole expect EUR/USD to experience downside pressure in the near term. However, the pair is set to recover toward 1.11 in the coming months.

Near term downside risks for EUR/USD

We see downside risks for EUR/USD from its current levels in the near term and project a recovery only going into Q4 2023. This near-term weakness is due to the positive impact from the widening of the EUR-USD 2-year rate spread being more than offset by wider peripheral spreads to Bunds and the falling EUR-USD box yields spread.

Beyond the near term, we expect EUR/USD to experience a gradual increase towards 1.11 over the next 6 to 12 months.