Economists at Rabobank expect that USD upside has further to run in the first half of 2022 and maintain a six-month EUR/USD forecast of 1.10, but see potential for the euro to recover some ground in the second half of the year.

USD could struggle in the latter part of 2022

“We retain our bullish outlook for the USD and our forecast of a move to EUR/USD 1.10 by the middle of the year.”

“The money market is currently priced for five 25 bps rate hikes on a one-year view. This may yet prove to be too aggressive an assumption. It is our house view that the Fed will hike four times during the course of 2022. The USD could be subjected to pullbacks if the market reassesses the likely pace of rate hikes.”

“The relative flatness of the US treasury yield curve reflects the market’s view that the tightening cycle the Fed is about to embark upon could be relatively short-lived. This factor could limit upside for the USD in the medium-term.”