EUR/USD to plunge towards 1.05 by early 2023 – Wells Fargo

As the Federal Reserve and foreign central banks become more active over the next several quarters, economists at Wells Fargo believe monetary policy differences will become increasingly important for currency performance during that period. Subsequently, they forecast EUR/USD at 1.05 and USD/JPY at 123.00 by early 2023.

Monetary policy divergence to be very consequential for the euro and the yen

“The ECB so far it sees that uptick in prices as temporary and has expressed less concern about inflation pressures than most other major central banks. That is reflected in the ECB's December monetary policy announcement, where it also gave no indication policy rates would rise any time soon. This divergence between the outlook for ECB policy and a faster acting Federal Reserve underpins our forecast for a weaker euro and for the EUR/USD to fall to 1.05 by early 2023.”

“We expect Bank of Japan monetary policy to remain on hold for the foreseeable future. As the Fed tightens policy and US bond yields rise over time, we target a USD/JPY exchange rate of 123.00 by early 2023.”