The tug of war between the Federal Reserve (Fed) and the European Central Bank (ECB) will be decisive for EUR/USD this year. Economists continue to expect renewed dollar strength in 202, but also expecting a repricing of the euro towards the end of the year and more sustained euro dominance next year.
The Fed to start on a quarterly hike path
“The Fed is set to hike rates four times this year by 25bp, starting in March, followed by further four hikes in 2023. A decision to allow the balance sheet to contract will be taken during the summer.”
“We expect the ECB to decide in March to stop net bond purchases around the end of August. 25bp rate hikes will follow in December 2022, March 2023 and September 2023.”
“EUR/USD is set to bottom at 1.10 later this year and climb to 1.18 by the end of next year.”
“Long bond yields are expected to climb further, but the curve to flatten from current levels by the end of the forecast horizon.”
