EUR/USD gained more than 100 pips on Tuesday and reached its strongest level since early June at 1.0672. Economists at Credit Suisse expect the pair to hit the 1.08 level by year-end.

Asymmetric risk of a EUR rise on a surprise 75 bps rate hike

“With our EUR/USD 1.0610 range top breached, we now shift our expected range low for the next month to 1.0440 (close to 7 Dec low) and additionally anticipate a test of May highs near 1.0800 (our new end-2022 target).” 

“We expect a 50 bps rate hike. For the EUR to be genuinely undermined by this ECB decision, ECB chief Lagarde would likely need to sound so dovish about the future pace of hikes and level of terminal rate that the market either materially shifts lower the latter or instead starts to invert the Euribor futures curve much more dramatically.”

“Sticky core inflation and wages leave an asymmetric risk of a EUR surge on a surprise 75 bps rate hike, something we refuse to rule out.”