EUR/USD to plunge towards 1.08 on war and Fed/ECB risks – Scotiabank

In the view of economists at Scotiabank, the EUR/USD pair is set to move downward as Fed’s hawkishness and the ongoing war in Ukraine weigh on the shared currency.

Widening yield spreads and war risk weigh on the euro

“Markets are already showing around an 85% chance of two 25bps hikes in 2022 – which we think is the most that the ECB will hike by this year – so there is limited scope for EUR gains on a more hawkish tone from the ECB.”

“With the Fed moving more aggressively and overshooting its neutral rate, yield differentials will remain a EUR headwind over the next few quarters.”

“We see the EUR aiming for a re-test of 1.08 in coming days/weeks on war and Fed/ECB risks.”