Danske Bank expects the euro to decline to $1.16 in the coming year, from $1.2125 on Friday afternoon, due to expectations of a tightening of monetary policy by the Federal Reserve (Fed). The market is "beginning to factor in a scenario" in which the Fed could raise interest rates and gradually reduce its bond purchases, with the prospect of broad fiscal stimulus under the Biden administration reinforcing hopes for a strong economic recovery in the United States, says Lars Merklin of Danske Bank. On the other hand, the European Central Bank (ECB) "should not change any parameters" of its policy, he adds. "If this divergence in expectations about the path of rates in the future continues, we believe the dollar will appreciate," he said.