EUR gained further in January. Economists at MUFG Bank expect the EUR/USD pair to extend its race higher.
Upward pressure on yields and increased fragmentation risks
“The ECB estimated a suppression of the term premium of potentially over 150 bps from QE since the GFC. That term premium is now rising and this is resulting in a narrowing of 10yr spreads versus the US which will help support EUR.”
“Fragmentation risks are a downside risk that could see EUR suffer if there is evidence of supply lifting market volatility. Still, overall we believe the trend for EUR/USD this year will be the upside.”
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