EUR/USD: Near-term downside towards 1.05, but the tide will turn to 1.10 by year-end – Nordea

The current sentiment in the FX markets remains very positive for the US dollar. Economists at Nordea see EUR/USD falling further before rebounding later this year to end 2022 around 1.10.

Dollar maintains the upper hand

“The euro will remain vulnerable as long as there is no change for the better in the war in Ukraine. The tension between Europe and Russia is leaving high uncertainty for the economic outlook in the Euro area and for the euro.”

“We see EUR/USD move down to 1.05 within the next three months. But the tide will turn for the dollar later this year. Sharply lower purchasing power among US households will slow the economic growth in the US and the Fed’s aggressive monetary tightening will bite as well. At the same time, we’ll have the ECB beginning its tightening cycle and hopefully, there will be better news from the war in Ukraine. Hence, the outlook for the European economy and the euro should improve. We expect EUR/USD to end 2022 around 1.10.”

“In 2023 the Fed will be approaching the peak of its hiking cycle and the focus will shift towards the timing of the first potential cut from the American central bank. At the same time the ECB will continue its tightening cycle, although, at a slower pace, but it should continue supporting the euro, and we’re looking for EUR/USD moving towards 1.16 during 2023.”