EUR/USD likely trade around 1.12 by 2016-end

Considerable movements have been witnessed in the EUR/USD pair in the past month due to the varying expectations regarding the US policy outlook.

There were increased expectations of the US hiking rates in summer due to growing signs of a recovery in the US economic growth in the second quarter. In early May, the pair touched a high above 1.16, but it dropped sharply in the remainder of the month. It declined briefly below 1.11. The subdued payrolls report for May pulled down projections of a hike by the US Fed in the near term, pushing the EUR/USD pair to about 1.13.

The market implied possibility of the US Fed hiking rate by 25 basis points by the September meeting has dropped from more than 60 percent at the end of May to about 30 percent. If the US economy recovers in the second quarter, as is projection, if job growth recovers and if inflation continues to accelerate towards 2 percent, the US Fed is expected to hike rates in the second half of 2016, said Lloyds Bank in a research report.

“We expect EUR/USD to drift lower, ending the year around 1.12”, added Lloyds Bank.