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EUR/USD has been increasing since the beginning of the summer. Here's why it's far from the end

Commentaries & Views

Sometimes, you suddenly fall in love with a certain song. You like it so much that you listen to it 25 times per day before getting sick. After that, you decide it’s probably time for a break, only to eventually return to it because of its enduring appeal. The same can be said about the EUR/USD pair. It is among the eternal values like love, friendship and the song where he was a boy, and she was a girl. Let’s figure out what future we can expect from this iconic pair. 

Since the beginning of the summer, the euro has appreciated against the US dollar by 2%, gaining a foothold at the level above 1.09 on the EUR/USD chart. Notably, the European Central Bank increased the interest rate by 4% - it was 2008 the last time this metric was so high.

These price levels have afforded us to forget that the USD was valued higher than the EUR in the past year. But despite the readily visible boost, it's important to recognize that the European currency still has a considerable distance to cover before reaching levels comparable to those of 2020. However, it is likely that the euro will gradually approach those levels in the near future.

Some experts consider the US dollar overestimated. Therefore, it is conceivable that the exchange rate could reach nearly 1.18 in one or two years.

Now, most ups and downs in currency rates are provoked by central bank actions, but it is worth noting that other significant drivers may emerge, even in the second half of 2023. As the Federal Reserve will finally stop hiking the key rate, the US dollar's appeal will diminish. Moreover, it’s likely that the general economic situation in the US will worsen. All of this might lead to capital outflow from foreign investors. 

In search of alternative options, investors may consider the euro and the broader European market. Among the other variants, there are emerging markets, including China (whose economic recovery is beneficial for the EU), and stock markets.

In other words, the dollar may fall out of favor in the coming years, although this is purely speculative. Europe is more dependent on energy carrier prices and influenced by the military conflict between Russia and Ukraine. While experts don’t expect significant growth in commodity prices, unforeseeable circumstances can occasionally disrupt expectations.

Widespread projections indicate that the EUR/USD pair will likely reach around 1.15 by the end of 2023 and approximately 1.18 in 2024. But this summer might be characterized by volatility, leading to fluctuations in both directions.

We know you can’t ignore what is going on between the US dollar and the euro. But it is crucial for individuals engaging in trades related to these currencies to conduct their own analysis. That’s the key to achieving success in Forex and other markets.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.