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The uncertainty and disagreement in the market with respect to inflation certainty set the scene for choppy conditions in the USD crosses in the months ahead. Jane Foley, Senior FX Strategist at Rabobank, forecasts the EUR/USD pair at 1.17 and 1.18 on a three and six-month view respectively.

Forthcoming push higher in CPI inflation indices in the coming months to be largely transient in nature

“The market’s excitement about the prospects for growth and inflation in the US suggests that this year’s USD rally may have further to run. On the back of this reason and given the additional covid related restriction in Europe, we have revised down our three-month EUR/USD forecast to 1.17.”  

“Eventually, we expect the market to come around to the view that the push higher in US inflation is likely to be mostly transitory. We expect this to lead to some backtracking in the USD and we look for a push back to EUR/USD 1.18 on a six-month view.”