Eurodance: is there any chance for the Euro to leave the US dollar behind?

EUR/USD pair in 2022 amounted to only 5% – not too bad – plus the Euro is rising. Let’s try to figure out what it means, whether the news about the crisis in the Eurozone was overblown, and what the future holds for the currency pair in 2023.

First of all, look at the chart showing changes of the EUR/USD since the beginning of 2022 to today. Since the end of January of 2023, the situation has been even better than at the end of 2022. But what’s more important is the general one. If you want to monitor every possible movement of the chart, you can use the economic calendar – it helps to stay ahead of upcoming economic events and be ready for the changes.

After the New Year, economic experts around the world changed their forecasts about the EUR/USD in favor of the strengthening of the euro. Things have changed over the last several months.

European countries expected a severe energy crisis this winter and these expectations negatively affected the EUR. As it turned out, the weather turned out to be warm. Then the pressure on the currency and the economy dropped and it became a growth driver – coupled with a fall in energy prices and saving extra reserves in storage facilities.

Another significant factor is the Fed’s politics. It had been hawkish for most of 2022. Every hike of the interest rate in the US made the USD stronger. Now however, experts do not expect significant key rate increases. Additionally, it looks likely that the Federal Reserve is likely to start the cycle of rate decrease. At the same time, analysts forecast that the European Central Bank will hike the policy rate significantly and will have kept it by the end of 2024.

Another important moment was China easing its Covid-19 restrictions in the autumn. The Chinese stock market and the yuan rate have already risen. How have we managed to find China in the EUR/USD pair? Well, China is an enormously large market which influences everything. In this case, the Chinese economy and manufacturers have been accelerating – so China and other emerging markets are becoming more attractive for investments instead of the US and the USD. Therefore, the dollar is decreasing against the euro.

In addition – despite last month’s hike – the EUR might still be undervalued by expert opinions. Most forecasts tell us that the EUR/USD ratio will change from 1.08 to 1.15 in the next 12 months and could even reach 1.18 in the 24 months. However, it’s important to be careful and make your own analysis before any trades. At the very least, geopolitical and economic outlooks will remain unstable in the near future and may affect the EUR/USD pair.