EUR/USD: Further weakness before modest recovery in 2023 – MUFG

The euro weakened versus the US dollar in September. Economists at MUFG Bank expect the EUR/USD pair to slump towards 0.90 before staging a recovery next year.

Risks are firmly to the downside in the near-term

“We maintain that over the near-term, the risks are firmly to the downside and we expect a period of further US dollar strength as financial market conditions worsen as asset prices correct further to the downside. This will help push inflation expectations further lower.” 

“The key for any broad turn in US dollar strength must be a pause in the tightening cycle. We suspect the Fed will pause after hiking in December which should allow some EUR/USD correction from levels closer to 0.9000.”