The EUR/USD exchange rate is currently subject to opposing forces. On the one hand, liquidity and improvement with respect to the debt crisis continue to support the euro. On the other hand, higher economic growth and interest rates in the US as well as the ‘fair value’ based on purchasing power parity continue to point to the dollar strengthening. Hence, overall, we see short-term upside risks for the EUR/USD exchange rate, but expect the dollar to strengthen over the course of the year.
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