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- Divergence between Fed and ECB to pummel EUR/USD to 1.10 – Nordea
Divergence between Fed and ECB to pummel EUR/USD to 1.10 – Nordea
FXStreet reports that economists at Nordea increase their conviction in a stronger USD and target levels around 1.10 in EUR/USD.
“We target levels around 1.10 in EUR/USD over the forecast horizon and expect the bulk of the move to happen sooner rather than later in conjunction with the launch of the tapering process.”
“Would the ECB be annoyed with a lower EUR/USD reading? Not at all since a lower reading would be helpful in bringing EUR inflation to 2% or above as wished for. This leaves a decent scope for a move lower in EUR/USD, also as positioning is not yet USD heavy.”
“The relative inflation outlook also heavily favours the USD versus the EUR, likely as it hints of a growing policy divergence between the Fed and the ECB. [...] We expect the first hike from the Fed in September 2022, followed by another three hikes in 2023.”
“We continue to think that the ECB will stick with the current EUR1850 B envelope, which still has more than EUR500 B of firepower left. Against the modest Euro-area inflation outlook, we do not see any ECB rate hikes even in our extended forecast horizon until the end of 2023.”
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