During June, the euro weakened against the US dollar moving from 1.2195 to 1.1855. Economists at MUFG Bank have lowered their forecast for the EUR/USD pair from 1.26 to 1.22.
ECB holds the line for now but a shift in September is likely
“The incoming economic data across the eurozone makes for a compelling case for the ECB to consider altering the pace of PEPP purchases come the September meeting. Given the PEPP program is scheduled to end fully in Q1 2022, some tapering down of the rate would be desirable to avoid a bigger cliff-edge decline next year. The economic backdrop will justify it too. Real GDP is set to be supported in H2 2021 by the release of funds under the EU Recovery Fund.”
“The FOMC announcements have led us to lower our year-end EUR/USD target from 1.2600 to 1.2200 but the prospect of ECB tapering and the benefits from the EU Recovery Fund should help provide a modest lift to EUR in H2 2021.”
“Our UST bond yield forecasts for 10-year remain below the 2.0% level throughout the forecast period and that will to some degree limit the upside for Bund yields. With tapering possible in September and PEPP ending in Q2 2022, we see scope for the US-EZ spread to narrow modestly further.”
