The Euro is at its lowest point this year. Should we expect parity with the US dollar?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
At the end of 2022, many experts believed that the era of the US dollar was coming to an end. As we reach the middle of 2023, the EURUSD has recently hit its lowest level of the year, nearly reaching 1.045. Let’s investigate why the US dollar is so strong and the Euro appears weak and what we can anticipate in the near future.
First, let's examine the recent movements of EURUSD on the chart from the past month that reveals a disturbing trend for the European currency.
However, if we consider the changes that have occurred over the course of this year, the picture is probably not so horrifying. Right?
Actually, nope. It’s still bad. The one-year chart sobers us up as when examining it, it becomes apparent that the exchange rate is steadily approaching a one-to-one ratio.
There are several reasons that affected the rate that much. One of them is changes in expectations regarding the major central banks' policies – the Federal Reserve and the European Central Bank. The ECB has been playing catch-up with the Fed for several years and is likely to continue doing so. Moreover, many market participants believe in the possibility of the Fed raising interest rates compared to the ECB, given the current strength of the US economy.
Simultaneously, among investors, there's hype surrounding 10-year US Treasury notes. Their yield reached 4.73% – the highest result in 16 years. Analysts speculate that if the yield achieves 5%, then the USD might become equal to the Euro again.
Sounds brutal, but it doesn’t necessarily mean you should rush to sell your euros. Many experts believe that the above mentioned factors will have a short-term effect. In other words, the euro may reverse this trend and begin to appreciate against the US dollar already by the end of 2023. Of course, various analysts make different assumptions, but generally, they agree that the rate will likely fall within the range of 1.10 to 1.15.
It's essential to conduct your own analysis before making any trading decisions, whether it involves the EURUSD or other currency pairs, within the Forex market or elsewhere. Plus, the market conditions might change even within a single day. That’s why tracking financial news, events and reports is crucial to become a successful investor and trader.