The European Central Bank (ECB) could now be the most aggressive central bank in tightening policy in Q1. ECB and Fed policy updates favour further upside for EUR/USD, economists at MUFG Bank report.

EUR to outperform against non-Dollar currencies 

“The ECB has now positioned itself as the most aggressive major central bank in terms of raising rates at the start of next year. On its own the narrowing of expectations for monetary policy divergence between the ECB and Fed should encourage the EUR to rebound further against the USD. It opens the door for EUR/USD to climb back up to the highs from back in May at 1.0787 and then up towards the 1.1000-level.” 

“Upside potential would though be dampened if global equity markets continue to correct lower in response to the hawkish policy updates and heightened fears over a hard landing for the global economy which would be supportive for the USD more broadly. In these circumstances, the EUR and USD should outperform alongside each other against the high beta G10 currencies of the AUD, CAD, GBP, NZD, NOK ad SEK.”