The trend of major central banks is expected to continue at the ECB’s expense until the beginning of next year. The Fed and BOE are likely to slow down rate hikes in the event of lower inflation, increased economic pressures, or both.
In the meantime, the ECB is expected continue to increase rates at a fairly aggressive pace. That rates might rise at the same ratio as the Fed’s did last year might be a bit of a stretch, though. The ECB is faced with a different set if challenges. It sets monetary policies for a number of countries that have very different fiscal policies. That might constrain the ECB’s final rate.
The ECB was the last of the major central banks to start hiking, which means there is more “headroom” for it to continue to tighten. The Fed is 200bps ahead of it, however. Given that the US is the only other economy that is comparable in size, and that both economies are each other’s largest trading partner, it’s an important comparison. It’s not just about the EURUSD.
The Euro fell substantially last year due to the ECB’s hesitation to tighten, and inflation rising above its peers. The large majority of this inflation was caused by…