How is the Euro looking for the new year?

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For readers interested in trading currencies with the iFOREX platform: What are the prospects for the European currency and the USD this year?

Will the Euro Keep Climbing?

For the first eight months of 2022, the US dollar gained over 12%. However, the price for the USD today might have shocked people a few months ago, because, between September and the start of February, it lost as much as 10% of its value. Analysts believe the main cause was the trend of improving inflation data that offered hope the Fed would put the brakes on their rate-hiking schedule. In this scenario, it was possible the US would avoid a recession.

Pacific Investment Management Co (Pimco) foresee risk appetite growing as 2023 wears on, so that “We expect the USD will continue to lose its appeal as the safe-haven currency of last resort”. Pimco also view the prospect of China’s economy making a solid rebound as bearish for the dollar.

Another scenario is conceivable, in which US inflation remains stubborn, economic data stays strong, and the dollar gains muscle again. The other side of this coin would be a downturn for the euro.

Speaking of the European currency, it climbed to its highest in seven months in the second week of January, buoyed up by dropping energy prices and a settling of recession fears in the Eurozone. In addition to that, “We got the miracle weather”, in the words of Mike McCormick of TD Securities. “That was a very good cushion to get the Eurozone past this recession”. McCormick was referring to the unseasonably warm weather which toned down demand for heating fuels and kept energy prices low.

But is the euro geared up for a sustained rally? For all of our readers, but particularly those who plan to be trading currencies with the iFOREX platform, we’ll do our best to address the question.

The Eurozone Economy

Surprisingly, GDP in Europe for Q4 2022 was up 0.1% on the previous quarter, which revealed a latent sturdiness in the economy. According to the IMF (International Monetary Fund), inflation in the region has been falling since October, although prices increases may yet continue in certain places. 

Business activity grew more robust in January, which hadn’t happened in six long months. With hopes for smoother-running supply chains aftebanr China’s policy shift on Covid, it was expected European consumers were on the road to spending more. In Germany, the biggest euro economy, consumer sentiment looked set to improve for a fourth straight month in February.

“A steadying of the Eurozone economy at the start of the year adds to evidence that the region might escape recession”, suggested Chris Williamson of S&P Global Market Intelligence. 

A Hiccup?

February 7th, however, marked the fourth consecutive session of losses for the European currency, as it fell 0.5% to find itself trading at 1.0669 to the USD. “The EUR fall from grace has indeed been aggressive”, pronounced Credit Agricole’s Valentin Marinov.

Behind the scenes, the feeling that the Fed was rooted on a hawkish path had returned to markets. A US jobs report had shown strong results, fueling this conviction. Although it was true the ECB (European Central Bank) had recently hiked rates by half-a-point and said they hadn’t finished, “the reassessment of US monetary policy is winning out in current markets”, explained Bloomberg.

The Terrain Ahead

Marinov expected the euro to get back on its feet by March, so that a dollar would buy you 1.05 euros. “It would take a more persistent Eurozone data weakness, dovish European Central Bank and wider peripheral spreads to justify a renewed downtrend in the euro”, he said.

For March, JPMorgan foresee a EUR/USD value of 1.10, which drops to 1.08 by September. Their position, as of early February, was neutral on the euro, bullish on the yen, and bearish on the British pound. In their view, “Energy dependence and geopolitical risks will be a theme for the region for years to come”.

As to the USD, Deutsche Bank’s George Saravelos reasons that “The two key drivers of the dollar’s safe-haven appeal – Europe’s energy shock and China’s zero-Covid policy – have turned”, and that we may therefore expect the dollar to trend downward in the near future.

Those of our readers who trade currencies with the iFOREX platform will know it’s fairly straightforward, once on the platform, to check on the price for the USD today, but also to access financial news of all kinds and keep abreast of the latest in forex.