By Yasin Ebrahim
Investing.com – The euro has suffered a bruising encounter against the dollar, but any hope of a reprieve for the single currency in the first half of the year is unlikely given the “clear and present danger” of rising U.S. interest rates, according to Dutch Bank ING.
EUR/USD was down 0.3% to $1.1325, and is down nearly 10% from its recent peak.
The bearish outlook comes in the wake of hawkish comments from European Central Bank board member Isabel Schnabel, who on Saturday warned that the ECB may be forced to act to curb if the EU transition to green energy proves inflationary.
Any uptick in the ECB's inflation forecast at its upcoming meeting in March could “see expectations build of earlier ECB tightening […] but with “the clear and present danger for tighter [US monetary policy]… we would prefer to back the dollar in 1H22,” ING said.
“[We] favour EUR/USD grinding back towards the 1.1300 area and staying offered into Wednesday's US CPI release,” the company said.
Bets on an aggressive path of rate hikes from the Federal Reserve as soon as March are expected to accelerate later this week, when the U.S. is expected to report its fastest pace of inflation since 1982.
“[W]e fully expect the Fed to hike in March, immediately after QE ends—and after three more awful CPI reports—and we think it increasingly likely that the second hike will come before mid-year, in May or June, leaving room for two further increases in the second half of the year,” Pantheon Macroeconomics said in a note.
The inflation report will arrive just a day after Federal Reserve Chair Powell’s his confirmation hearing on Tuesday at 10:00 AM ET before the Senate Banking Committee.
“There is high potential for fresh policy guidance being delivered during his testimony,” Scotiabank said in note.