According to Reuters, last week the USD suffered the biggest weekly decline since the era of freefloating exchange rates began over 50 years ago. Nonetheless, economists at Rabobank expect the EURUSD to return to parity.

New dawn or false dawn?

“The market’s focus on peak inflation is misplaced with the issue for the Fed more likely to be about the persistence of price pressures. This implies that once Fed rates do reach their peak level, that they will then stay higher for longer. This suggests that the USD could hold on to most of this year’s gains for longer.”

“By the ECB’s next policy meeting, Germany may already be in recession. As has been in the case in the UK in recent months, there is no guarantee that the EUR will response favourably to higher rates if the economic backdrop appears grim. Although we see the risk of recession in the US next year, the outlook is not as severe as in Europe.” 

“Strong resistance awaits in the EURUSD 1.03.50/70 area. We see risk that parity will be hit again before this area is breached.”