EUR/USD: Reversal to continue to play out in 2022 – Danske Bank

EUR/USD spent most of the time rising with the post-covid recovery in 2020. This has reversed during 2021 and economists at Danske Bank expect such reversal to continue playing out in 2022. 

2022 is likely to bring more of the most recent history

“European institutions are conducting a EUR-negative policy in their fight against COVID-19, which will have negative ramifications beyond the Covid-19 crisis itself. Furthermore, global growth expectations are most likely to be revised lower and equities will probably continue to show a high preference for strong fundamentals via ‘quality’ – this is USD-positive.”

“Irrespective of the large move seen in EUR/USD during H2 2021, we see more to come as liquidity tightens, global growth expectations increasingly peak and the market sees more asymmetry between EUR and USD across factors such as economic dynamism, predictability, relative equities, political stability, and many more areas.”

“The key risk is a scenario where global yield curves steepen amid outperformance in European and EM equities alike would probably also be consistent with upside risk in EUR/USD. Such could come if inflation fades, central banks add economic support, and global demand rises from its current high levels as supply limitations disappear.”