**Nordea Forecasts Euro to US Dollar Exchange Rate to Reach 1.27 by End of 2027 Due to Dollar Weakness**
*Based on the original article by James Skinner, ExchangeRates.org.uk*
The global currency market is poised for a shift over the next few years, led by a predicted depreciation in the US Dollar (USD), according to analysts at Nordea. The Nordic bank has released a medium-to-long-term outlook for the Euro to Dollar (EUR/USD) exchange rate, projecting a steady increase in the pair to reach 1.27 by the end of 2027.
This projection signals a significant change from recent trends, where the USD has shown persistent strength. According to Nordea, this reversal is rooted in a range of macroeconomic factors including relative inflation trends, changes in Federal Reserve policy, and shifting global investment flows.
Here is an in-depth analysis of the report and its implications for foreign exchange markets.
**Background**
The EUR/USD remains the most traded currency pair globally, often serving as a barometer for the health of the global economy and central bank policy divergence. The USD has generally outperformed the Euro in recent years, supported by relatively aggressive Federal Reserve rate hikes, a resilient US economy, and geopolitical risks that have directed safe-haven flows toward USD-denominated assets.
However, Nordea believes this trend is set for a major reversal in the longer term.
**Key Takeaways from Nordea’s EUR/USD Forecast**
Nordea sees the US Dollar undergoing a depreciation cycle that will result in a higher EUR/USD exchange rate over the medium-term. Here are the main drivers behind this view:
– **US Inflation and Real Interest Rates**: Nordea expects that US inflation will remain persistently higher than in the Eurozone, even as economic conditions soften. This will lead to weaker real (inflation-adjusted) interest rates in the United States, undermining the fundamental appeal of the USD for global investors.
– **Federal Reserve Policy Normalization**: While the US central bank has engaged in a cycle of rate hikes to combat inflation, an eventual path toward rate normalization will make the USD less attractive. Nordea forecasts that the Fed will eventually align more closely with European Central Bank (ECB) policy, narrowing the interest rate differential that has supported USD strength.
– **Twin Deficits in the US Economy**: One of the more structural themes highlighted by Nordea is the United States’ growing fiscal and current account deficits, often referred to as the “twin deficits.” This double imbalance reflects both excessive government borrowing and a wider external trade gap, which tends to weaken a currency over time.
– **Global Rebalancing and Risk Sentiment**: As global trade and financial conditions recover post-pandemic and through technological decoupling, Nordea sees renewed confidence in European productivity, particularly in export-driven economies such as Germany. This could increase demand for Euro assets and thus strengthen the EUR in global portfolios.
**Nordea’s EUR/USD Forecast Trajectory**
The bank’s analysts outlined a projected path for the EUR/USD exchange rate:
– **End of 2023**: 1.10
Steady recovery as European growth stabilizes and inflation eases.
– **End of 2024**: 1.15
Dollar softness emerges as US interest rates peak and begin to retreat.
– **End of 2025**: 1.20
Structural weaknesses in USD weigh down the currency.
– **End of 2026**: 1.23
Market pricing reflects narrowing real interest rate differentials.
– **End of 2027**: 1.27
Full valuation normalization as Euro gains from comparative macroeconomic strength.
This path represents a broad shift in market dynamics, transitioning from USD dominance to a more balanced or even Euro-favoring global monetary framework.
**Macroeconomic Drivers Behind the Outlook**
1. **Inflation Trends**
– Nordea
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