The money market has pared back expectations regarding the extent of European Central Bank (ECB) rate rises. Therefore, the outlook for the euro has worsened. Economists at Rabobank still expect the EUR/USD pair to test 2022’s low at the 1.1350 area.

Window of opportunity for ECB rate hikes could be narrow

“On the back of risks to gas supply over the winter, we expect the Eurozone to fall into recession in late 2022/early 2023. Not only does this suggest that the window of opportunity for ECB rate hikes could be narrow but, even more worrying for EUR bulls, this suggests the worries regarding fragmentation in Europe are likely to be enhanced.”

“We continue to see scope for a dip back to the year’s low in the EUR/USD 1.035 area on a one to three-month view.”