A simple economist’s view of the euro and the yen

The recent weakness of the US dollar against the euro and especially the yen has already led many to tear up their currency forecasts for the year. However, expectations for US monetary policy still seem to be the key driver of the euro exchange rate. We therefore continue to predict renewed euro weakness as the Fed hikes rates further than generally anticipated. The rebound in the yen is harder to explain, but it is the last thing that Japan’s economy needs and therefore also unlikely to be sustained.