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Stronger USD will drag EUR/USD to 1.22 in 12m – Rabobank

FXStreet (Edinburgh) - Jane Foley, Senior Currency Strategy at Rabobank, sees the pair slipping back to 1.2200 in a 12-month view.

Key Quotes

“While the falls in both the US current account and budget deficit give further credence to the USD’s recovery, the pace of US growth still lacks the vibrancy of previous economic cycles”.

“The IMF this week’s shaved is estimate for the US expansion next year. Some US corporates have already begun to express concerns about the strengthening USD; a stronger currency in itself represents a monetary tightening”.

“As it stands, CPI inflation in the US remains benign and wage pressures still soft; September average earnings remained flat m/m”.

“Looking ahead, a continuation of USD strength could have material impact on the timing of the Fed’s first interest rate decision”.

“This was made clear in the minutes of the September FOMC meeting. It is our view that the Fed will not hike interest rates until the end of Q4 2015, several months later than the current consensus market estimate”.

“Implicit in our Fed call is the risk that the USD will suffer further pullbacks in the months ahead as the market adjusts to slower pace of tightening from the Fed”.

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