Danske Bank's research team highlights that robust US economic data and increasing energy prices are supporting the US Dollar, exerting downward pressure on the EUR/USD exchange rate [1]. The ADP National Employment Report for May showed job growth of 122,000, close to expectations (consensus: 117,000), with broad-based gains across sectors and firm sizes [1]. Additionally, the ISM services index rose to 54.5 (consensus: 53.8, prior: 53.6), driven by accelerating growth in new orders, and the prices subindex reached its highest level since August 2022, indicating upside risks for inflation due to higher oil prices [1].
In the euro area, the final May services PMI was revised up to 47.7 from the flash estimate of 46.4, which lifted the composite PMI to 48.5 from 47.5. Despite the upward revision, both indices remain in contractionary territory, signaling continued weak activity, though the results are less negative than initially suggested [1].
Fed member Lorie Logan expressed concerns that higher interest rates may be necessary later in 2026, echoing similar sentiments from other FOMC participants [1]. Danske Bank maintains its forecast for Fed hikes in December and March, projecting EUR/USD to trend lower towards 1.12 over the coming year [1]. The bank also anticipates the upcoming US May Jobs Report to show nonfarm payrolls at +110,000, slightly above consensus, an unemployment rate of 4.2%, and average hourly earnings rising 0.3% month-over-month. A solid jobs report could further tilt the Fed's balance of risks toward a tightening bias [1].
CONCLUSION
Danske Bank expects continued strength in the US Dollar against the Euro, driven by robust US data and rising energy prices. The bank forecasts Fed rate hikes in December and March, with EUR/USD trending lower towards 1.12 over the next year. Market sentiment is moderately negative for the Euro, with medium impact expected on currency markets.