Forex in this article
Above all, the sharp increase in inflation in Europe and the USA due to rising raw material and energy prices as well as intermediate products due to gaps in the supply chains has been unsettling for some time.
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As early as mid-2021, one could guess that the Fed would react first. After all, the US economy as a whole is very robust and the job market is running hot. A halt to bond purchases and a rate hike by the Fed gradually crystallized more and more. In addition, the Russian-Ukrainian war is weakening the euro due to the regional proximity and the resulting fears. The following sanctions tend to weaken the European economy due to the significantly greater economic ties.
This all led to a steady rise in the US dollar against the euro. For a short time, the euro even fell below the one-dollar mark. At the same time, the ECB’s long period of inactivity led to a loss of confidence in the euro, which favored the rise of the US dollar.
The question now is whether the weakness of the euro will continue. Due to the fact that the central banks Fed and ECB are currently acting in similar steps, the pressure on the euro should ease significantly from this direction. Instead, the economic influencing factors must be given greater consideration. Due to the fact that the euro has fallen by almost 20 percent, European exporters can now offer their goods on the world market at significantly lower prices than companies producing in US dollars. For this reason, the demand for European goods should increase significantly.
This, in turn, should increase demand for the euro in the future. On the other hand, investments in the euro zone could become more lucrative for American investors due to the currently strong US dollar. The resulting effect is again that demand for the euro should increase. For this reason, a consolidation at the current level over a few weeks or even months can initially be expected. A subsequent prolonged rise in the euro represents a likely scenario.
By Uwe Eilers, board member of FV Frankfurter Vermögen AG in Bad Homburg / Königstein
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