Rate differentials and the impact of energy revenues make the environment very difficult for the euro. Therefore, ING strategists report that EUR/USD should be close to parity for much of the second half of the year.
Late cycle economies will keep the dollar bid
“It seems pretty clear that the US is a late cycle economy with high inflation and low growth. This phase of the cycle is synonymous with inverted yield curves. The dollar tends to stay on offer at this part of the cycle until conviction grows.” that the Fed is going to ease monetary policy and two-year yields start to fall. That’s probably a story for the first quarter of 2023 and not for today.”
“We expect another 125 basis points of hikes from the Fed this year and only 50 basis points from the ECB (in September). The risks appear skewed towards even higher US rates.”
“With Europe entering a recession due to the energy crisis looming this winter, EUR/USD may remain near lows for the second half of 2022.”
Source: Fx Street
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