The Fed’s balance sheet has taken center stage on markets, which has also influenced the EURUSD exchange rate. While the Fed’s monetary policy action and guidance has so far been rather in line with our expectations, the ECB has been less expansive than anticipated. We expect markets to be rather forward-looking and continue to expect the ECB to counteract a potential ‘passive tightening’ of liquidity; thus, sooner or later, there should be a reversal supporting the dollar.
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