Time to revise the EUR/USD forecast. The earlier-than-expected Fed tightening cycle suggests ING’s prior end-2021 EUR/USD forecast of 1.28 was just too high. Yet November and December are seasonally weak months for the dollar and assuming that the Eurozone recovery goes to plan, EUR/USD should still rally to the 1.23 area.
“This month we are revising our EUR/USD profile to adjust for a Fed seemingly ready to hike rates in late 2022. That is much earlier than the 2024 initially envisaged under its new inflation targeting framework. That window for our forecast EUR/USD move as high as 1.28 looks to be closed on a more hawkish Fed.”
“Yet the big, broad turn higher in the dollar should really start in 2Q22 – six months before the Fed starts tightening. Before then, EUR/USD should be able to trace out a 1.17-1.23 range.”
“We still think 1.23 is possible because of strong growth momentum into 2H21 and an ECB that may too have to reconsider its ultra-dovish settings when it meets in September.”
