Late in the year, worries about US inflation – and the possible consequences of it through bringing forward Fed rate rises – has helped drive EUR/USD down. What happens in 2022? USD could remain underpinned in the first half of the year but economists at Deutsche Bank see the EUR/USD pair climbing to 1.20 by the end of 2022.

Many valuation measures suggest that the USD is overvalued

“Relative interest rates are not the only factor and other fundamentals could work against the USD. The growth differential between the US and Europe may decline slightly in 2022 (although remaining high) – implying less capital flow into the US.”

“Many valuation measures (e.g. NEER, REER, OECD-PPP and GDP per capita-adjusted PPP) also suggest that the USD is overvalued, and investors’ big long positions in the currency could be run down.”

“We think that USD strength could be maintained into the first half of 2022. But later in the year, we think that the EUR will strengthen, taking EUR vs. USD to 1.20 by end-December 2022.”