EUR/USD: Diverging mon-pol outlooks and highly-negative terms of trade remain EUR headwinds – Scotiabank

The EUR/USD pair hit a low near 1.08 in March. Economists at Scotiabank see limited EUR upside on ongoing war risks and monetary policy divergence.

The Federal Reserve is ratcheting up its hawkish tone

“We think the issues that would delay a hike this year remain relatively intact. Fuel and energy prices, though easing from their invasion surge, are still at levels that depress non-essential spending and should remain high with Russian sanctions maintained.”

“The odds of a resolution to the war have improved, but there is too much uncertainty for the ECB to back up the two 25 bps hikes priced in by markets; we think one hike is a safer bet. Meanwhile, the Fed is ratcheting up its hawkish tone.”