The start of 2022 has seen a strong performance by those currencies backed by central banks prepared to pull the trigger on rate increases. In the view of analysts at ING, Fed lift-off should propel EUR/USD briefly below 1.10 this summer, but by year-end looming ECB hikes in 2023 could provide some support.

FX favors strong USD in 1H2022

“We would expect the dollar to stay strong through the first half of the year as the Fed prepares to pull the trigger in 2Q and the market starts to price the terminal US policy rate closer to 2%. Additionally, a mixed global risk environment should prevent the kind of broad-based flows into emerging markets, which can occasionally weaken the dollar.” 

“Our call is that EUR/USD briefly trades below 1.10 this summer, but could find support into year-end, ahead of the 2023 ECB rate hike.”