EUR/USD to plummet to 1.05 on a Chinese FX policy shift in tandem with lower rates – SocGen

The euro has fallen sharply, as the market has repriced US rate expectations, and while a move to 1.10 is easy to imagine, something needs to change if we are to see the euro fall significantly below that level. Europe's greater vulnerability to China is the most likely catalyst, economists at Société Générale report.

How far can the euro fall? Ask the Chinese yuan

“The Omicron variant of COVID-19 is the only thing that seems able to stop the Fed pushing ahead with faster tapering of asset purchases and thereby buying themselves a cheap option to start hiking rates earlier. We expect three hikes in 2022 and by the time the first one materialises, the dollar should be stronger.”

 “EUR/USD is likely to trade below 1.10 in 1H, but a move to 1.05 or below probably needs a significant rally in USD/CNY, which is a risk rather than a likely event in 2022.”