USD to outshine peers on a hawkish Fed – Nordea

Inflationary pressures are piling up, therefore, economists at Nordea expect the Fed to hike three times in 2022 and 2023, respectively, and the ECB once in 2023. Accordingly, the USD is likely to outperform its peers.

EUR/USD targets 1.08 in a year from now

“Our new calls for six 25bp rate hikes for the Fed and one 25bp rate hike for the ECB by the end of 2023 obviously have consequences throughout the bond curve.”

“Given our views on the ECB and the Fed, we also stick to our long-held view that the relative discrepancy policy-wise should lead to a stronger USD versus EUR. We target a EUR/USD exchange rate at 1.08 at the end of 2022.”

“It seems as if the debt ceiling debate is getting close to a conclusion, which will enable the Treasury to rebuild its crisis account (TGA) at the Fed, removing more than 750 B of dollar liquidity over a couple of months alongside the aggressive tapering process that we envisage. Furthermore, the USD often tends to perform when growth slows as USD liquidity via global trade flows is lessened from a momentum perspective – Fed tapering also pulls in the same direction.”