EUR/USD: ECB and Fed policies will diverge, boosting the euro — MUFG

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The short-term outlook for ECB monetary policy has been the driver of euro volatility this week. A divergent monetary policy between the Fed and the ECB would boost the euro, according to MUFG Bank economists.

The official ECB interest rate will reach 3.00% by the end of this quarter

“We maintain our forecast that the official interest rate will reach 3.00% at the end of this quarter. A scenario that is not fully discounted in the euro zone rate market, which currently expects a total of 93 basis points of increases in the February and March monetary policy meetings.”

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“We expect ECB and Fed policies to diverge early this year, as the Fed will slow its rate of hikes to 25 basis points in February, in response to further signs of moderation in US inflation. This continues favoring the strength of the euro, together with the improving cyclical outlook for the euro zone, which is currently being reflected in the markets as recession risks abate.”

Source: Fx Street

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