Synopsis:

Danske Bank has delayed its Fed rate cut forecast from June to September 2025 due to a more front-loaded fiscal stimulus outlook, but maintains a bearish stance on EUR/USD, citing macro and structural factors outweighing Fed repricing in FX dynamics.

Key Points:

• Fed Call Shifted to September:
  Danske now sees the first Fed cut in September 2025, instead of June, reflecting a fiscally expansionary tilt from Q1 2026.

• Terminal Rate Unchanged:
  Despite the delay, Danske maintains its terminal Fed Funds rate forecast of 3.00–3.25% by September 2026.

• US Fiscal Outlook Turning Looser:
  The updated budget reconciliation bill implies larger near-term deficits, with federal budget shortfalls potentially reaching 7.0% of GDP in 2026–2027 after a brief tariff-induced tightening phase.

• FX Market Focus Has Shifted:
  Danske notes the USD’s sensitivity to Fed pricing has declined, with macroeconomic divergences and structural imbalances now more critical to EUR/USD pricing.

• EUR/USD Outlook Unchanged:
  Danske maintains a bearish view on the euro and holds its 12-month EUR/USD target at 1.20, despite the revised Fed timeline.

Conclusion:

While Danske delays its expected Fed rate cut to September, it keeps its broader FX outlook intact, arguing that EUR/USD trajectory is now more tied to structural headwinds than to incremental shifts in Fed policy expectations.