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Foreign exchange analysts at a major European lender have revised up their forecasts for the Euro, although they still anticipate further downside from here.

ABN AMRO had predicted the Euro was on course to fall to parity against the Dollar in 2022, but they have since acknowledged recent developments make this target too low.

"We reviewed our base case scenario and indicated that EUR/USD could drop to parity on safe haven buying for the US dollar. Since then, a lot has changed, and investor sentiment has improved as well," says Georgette Boele, Senior FX Strategist at ABN AMRO.

In a 'fine tuning' of their expectations for global markets ABN AMRO says they now expect investor sentiment to be "cautious as opposed to negative", and as a result now think that there is less upside for the dollar versus the euro.

The Euro fell sharply in the early days of the Russian invasion of Ukraine but has since recovered some ground as the war reaches an equilibrium: Russia's brutal invasion continues, but progress is slow.

Peace talks also continue, reminding investors that being too negative could be costly in the event that a peace settlement is achieved.

Betting against the Euro into such a scenario could also prove costly.

Above: EUR/USD at daily intervals.

EUR/USD reference rates at publication:

Spot: 1.0978High street bank rates (indicative band): 1.0594-1.0671Payment specialist rates (indicative band): 1.0880-1.0910Find out more about market-beating rates and service, hereSet up an exchange rate alert, hereCentral bank policy expectations meanwhile argue for further Dollar strength says ABN AMRO as the Federal Reserve will still outpace the European Central Bank in the hiking stakes.

The analyst finds financial markets now expect a total of 185 basis points of rate hikes by the Fed and 40 basis points of rate hikes by the ECB.

"This is more than we have forecast for the Fed and the ECB. The repricing to our views could weigh on both the US dollar and the euro. But the widening rate spread should still support the dollar versus the euro," says Boele.

Aiding the case for further Dollar strength is the view that the Eurozone economy will remain prone to negative effects caused by the ongoing war in Ukraine due to its proximity to the conflict.

"The eurozone and UK economies will continue to be much more negatively affected by the Ukraine war than the US economy," says Boele.

"So, we are still positive on the US dollar versus the euro, but we see less upside than the parity we indicated a few weeks ago. Our new year-end forecast for EUR/USD is 1.05," she adds.