Economists at CIBC Capital markets expect the euro to depreciate as the Federal Reserve outguns the European Central Bank (ECB) on both tapering bond purchases and raising rates.

ECB to maintain bond purchases into 2023

“The 16 December ECB meeting is likely to prove pivotal to the EUR’s 2022 trajectory. The meeting is accompanied by updated forecasts, including inflation (HICP), out to 2024 for the first time. The view that core prices will be relatively well behaved will help maintain medium run ECB policy inertia.” 

“While hawks and doves will debate the medium term assumptions, we expect them to maintain bond purchases well beyond the end of next year.”

“In view of the ECB sequencing assumptions, that would leave rates on hold well into 2023, in contrast to the US. That policy gap underscores why we continue to favour EUR underperformance versus the USD, and look for EUR/USD retreating towards 1.10 in 2022.”