EUR/USD is back above parity. Economists at Rabobank see risk that this move could be short-lived.

European Central Bank may be forced to slow the pace of its moves

“Structurally higher rates of inflation in the post pandemic period could suggest higher for longer US policy rates, which could mean that relative USD strength could persist for some time, even when it retreats from its highs. In addition to this, we see a strong risk that the EUR is not fully priced for the economic impact of Europe’s energy crisis.”

“Yesterday Germany’s IFO economic institute warned that Germany is headed into recession and forecast that its economy will contract by 0.6% in Q4. This raises the question of how long the ECB can sustain a policy of large rate hikes. A 75 bps move is expected later this week. Beyond that, it may be forced to slow the pace of its moves.” 

“We continue to see scope for EUR/USD to drop to 0.95 into the winter months.”