EUR/USD will continue to fall next year as the euro lacks ECB stimulus.
Forex news from the European morning session on Dec 16, 2021
The European Central Bank (ECB) paved the route out of pandemic-era support measures while while retaining flexibility to respond to unexpected developments. Nordea economists expect more upside potential for EUR bond rates and less upside potential for the EUR/USD.
Net asset purchases will be completed in the first quarter of 2023, with the first rise occurring in late 2023.
“The ECB will stop net PEPP by the end of March 2022 and introduced a plan for reducing its bond purchases, though not entirely to zero.”
“The path for asset purchases effectively eliminates the possibility of rate rises as early as next year – we project net asset purchases to finish in H1 2023 and the first rate hike to occur in late 2023.”
“We see diminishing ECB bond purchases supporting a modest rise in longer-term euro-zone bond rates, as well as steepening potential on the EUR curve and allowing for some widening in euro-area bond spreads.”
“We believe the Fed’s outlook has more space for revision than the ECB’s, and we expect EUR/USD to fall more next year.”
The EUR/USD is expected to fall in the first quarter of the new year. Nonetheless, Nomura economists believe the world’s most popular currency pair will regain some ground in the second quarter.
The ECB intends to keep its accommodating policies in place through the first quarter of 2022.
“Rising COVID-19 cases, lockdowns, a falling eurozone trade surplus, fixed income outflows, and sluggish eurozone stock inflows explain why we forecast further EUR/USD depreciation, with a trend towards 1.10 expected through Q1 2022.”
“In early Q2 2022, we expect the EUR to rebound with covid vaccination boosters, an economic reopening in the eurozone, elections behind us, and, most crucially, signals that inflation is stronger than the ECB expects.”
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