EUR/USD: Tightening cycle and economic slowdown to drive a further decline to 1.08 – Danske Bank

The most important event right now is clearly Russia’s attack on Ukraine. In the opinion of economists at Danske Bank, the impact will not derail the global expansion but with the Federal Reserve hiking rates at every meeting in 2022, the EUR/USD pair is forecast at 1.08 on a 12-month view.  

Ukraine crisis a new risk to global growth 

“The Russian attack on Ukraine creates new downside risk to growth and further upside risks to inflation. However, our baseline scenario is that it will not derail the global expansion and we still look for the Fed to hike rates at every meeting this year and ECB to hike in December.”

“We continue to look for bond yields to move higher over the coming quarters on the back of high inflation and Fed tightening not only via higher rates but also ‘active quantitative tightening’ by selling bonds starting in May. Geopolitics currently mitigate the upward pressure on global yields.”

“EUR/USD has moved lower still to 1.12 and we expect the tightening cycle and economic slowdown to drive a further decline on a 12-month horizon to 1.08.”