While economists at Rabobank concur with the Fed that rises in CPI inflation will be transitory, optimism in the US economic outlook contrasts with disappointment in the EU linked to the slow vaccine rollout The EUR/USD pair still risks a move back to 1.20, but it is seen trading at 1.18 on a 12-month view.
Key quotes
“While we continue to expect the Fed to battle with the markets in the months ahead to push through the message that its policy will remain extremely accommodative, market optimism in the US reflation trade is likely to ensure that the USD retains a resilient tone.”
“The harsh rhetoric from both sides in the first high level face to face talks between China and US officials under the Biden Administration make clear that relations remain tense. This is also USD supportive.”
“On the expectation that the Fed will have success in containing inflation fears and bond yields, we do see scope for EUR/USD to push back to 1.20 in the coming weeks. That said on expectations of a strengthening US recovery this year, we have lowered our 12-month forecast to 1.18 from a previous forecast of 1.23.”
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