Wells Fargo Investment Institute raised its U.S. dollar forecasts through the end of 2027, pointing to a widening interest rate gap between the Federal Reserve and other developed-economy central banks. The firm cut its euro and yen targets against the dollar and lifted its target for the ICE U.S. Dollar Index.
Wells Fargo Investment Institute revised its currency forecasts on Tuesday, projecting further dollar strength through the end of 2027 as inflation-driven Federal Reserve rate increases widen interest rate gaps with other developed economies.
The firm moved its dollar/euro exchange rate target to $1.10-$1.14 from a previous range of $1.17-$1.21 for year-end 2027. It shifted the yen/dollar target to ¥160-¥164 from ¥158-¥162. It also raised the ICE U.S. Dollar Index target to 100-104 from 95-99.
Wells Fargo analysts expect the Fed to implement a full percentage point more in rate hikes into 2027, while the European Central Bank and other central banks are projected to hold rates steady or reduce them as earlier increases slow economic growth next year. The revised outlook follows the August Producer Price Index report showing elevated inflation and the Fed's September 16 rate hike. Interest rate futures markets show expected U.S. short-term yields have outpaced comparable eurozone rates since September 1 through September 24.
The analysts said wider interest rate differences between the U.S. and other developed economies should attract international investors. They believe the U.S. economy can withstand higher borrowing costs, giving the dollar an edge over other currencies. Wells Fargo also cited geopolitical risk and business technology spending as factors likely to add to inflation pressure, prompting additional Fed rate increases.
Source: Investing.com
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