Analysts at Danske Bank point out that the increasingly hawkish stance from the Federal Reserve continues to support their expectations of a stronger dollar with EUR/USD moving to 1.08 in a year from today, although they warn, the pair has predominately traded sideways over the past month.
“We lower our 12M forecast from 1.10 to 1.08 as we see policy makers as having become increasingly committed to curtail global inflation by tightening financial conditions; and further, the economic cycle is slowing. The risk remains that inflation fades by its own and supply chain issues are resolved, in which case there is upside risk to EUR/USD.”
“The key risk to see EUR/USD towards 1.20 is seeing global inflation pressures to fade and industrial production increase. However, ‘transitory’ has substantially lost credibility and European industrial production continues to be weak. The risk to take EUR/USD below 1.08 is a scenario where central banks tightens further amid a cyclical slowdown, akin a scenario like seen in early 80’s.”
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