2 / FOREIGN EXCHANGE RATES, MONETARY POLICY RATES AND BOND YIELDS, END OF PERIOD Year 2024 2025 2026E 2027E EUR/USD 1.04 1.17 1.24 1.26 EUR/GBP 0.83 0.87 0.88 0.88 EUR/NOK 11.24 11.83 11.25 11.25 EUR/SEK 11.48 10.82 10.50 10.40 ECB: Deposit rate 3.00 2.00 2.00 2.50 Fed: Fed funds target rate (upper end) 4.50 3.75 3.75 3.75 US: 10Y benchmark yield 4.58 4.15 4.50 5.00 Germany: 10Y benchmark yield 2.36 2.85 3.15 3.30 C / Longer yields headed higher again, despite ECB rate cuts Longer yields versus the central bank rate D / Interest rates and the dollar have converged again Dollar index vs interest rate differentials C / Longer bond yields have risen on the back of higher term premia, despite lower central bank rates. D / The USD is trading back at what interest rate differentials would imply after a turbulent year, with high institutional risk premiums. The US economy has proven remarkably resilient and fared much better than feared. Restrictive immigration policies and tariffs have clearly slowed down the economy, but surging investments in artificial intelligence have offset some of that drag and provided a new source of strength. Even so, it is evident that the days of exceptional growth are behind us, both in absolute and relative terms. Economic growth has clearly picked up steam in the rest of the world. Growth in Europe and especially Germany will likely accelerate even further this year, as fiscal policy is poised to deliver strong tailwinds. As a result, we expect the economic gap between the US and the rest of the world to continue to narrow in the coming years, which would weaken the dollar further. The changing growth trajectory is also apparent in our central bank forecasts. The ECB will likely gradually shift towards a tightening bias before it begins to hike rates next year, while the Fed is likely to maintain an easing stance, but remain sidelined. We do not expect the Fed to lower its policy rate twice this year, as the market is currently anticipating. Higher interest rates could support the dollar, but with the bond market only pricing in two rate cuts, the effect would be limited. In addition, we do agree with the bond market that the balance of risks points towards a weaker economy and rate cuts, and not the other way around. Beyond the macroeconomic backdrop, several flashpoints have the potential to trigger significant dollar moves just like last year. Institutional risks range from President Trump’s focus on influencing the Fed to the Supreme Court’s ruling on the legality of the reciprocal tariff programme. Either could erode confidence and raise the risk premium investors demand to hold the dollar, similar to what we experienced last year around Liberation Day, when the dollar weakened far more than interest rate differentials would suggest. That relationship has closed again, but could quickly reemerge if investors become nervous. A ceasefire between Russia and Ukraine is another important geopolitical risk, which could strengthen the euro and other regional currencies against the dollar. Overall, we maintain our view that the dollar will weaken further over the next years, but expect more modest and gradual depreciation compared to last year. Several flashpoints could create larger fluctuations and result in an even weaker dollar. Tuuli Koivu Chief Economist Finland tuuli.koivu@nordea.com +358 9 5300 8073 @ koivutuuli Philip Maldia Madsen Senior Analyst philip.maldia.madsen@nordea.com +45 2625 1379 @ MadsenMaldia Jan von Gerich Chief Analyst jan.vongerich@nordea.com +358 9 5300 5191 @ JanVonGerich 1 / 2026 / Nordea Economic Outlook / 07
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