As Energy Drives Currency Fluctuations, The Dollar Rises And The Euro Drops

Rising energy costs have thrown a long shadow over the euro zone’s economy, but have also reinforced the dollar’s safe-haven appeal. On Wednesday, the dollar surged to fresh 20-year highs while the euro fell to new two-decade lows.

In June the central bank raised interest rates by an eye-popping 75 basis points, but it had no effect on the value of the dollar or the euro. US dollar and Euro might soon be valued precisely the same, according to some experts. A new 20-year low for the euro was reached on Tuesday, July 5, when it traded for 1.028 dollars, the lowest price in the currency market for the single currency since December 2002. In light of recent economic statistics, investors expect the European Central Bank (ECB) to raise interest rates as a result. Because the Federal Reserve is taking a far more active approach to controlling inflation, a depreciation of the euro versus the dollar seems inevitable.

An earlier spike in the dollar index and a drop in the euro to under $1.02 marked the lowest marks of the year for both currencies. In the first half of the year, the index is up 13%, putting it on track for its best year since 2014.

Credit Suisse’s global head of macro trading strategy, Shahab Jalinoos, says that the dollar has risen in value because energy costs are high and the Federal Reserve has been increasing interest rates more swiftly than other central banks.

The current condition of the USD and Euro

So far this year, the euro has lost 9%, and in the previous year, it lost 13%. Furthermore, no one is making the assumption that the correction is complete at this point. Ignacio de la Torre, the chief economist of Arcano Partners, predicts that “the development of interest rates in the US versus the eurozone will continue to draw capital flows to the dollar zone.” By raising interest rates quicker than other central banks, the Fed has turned the dollar into a safe haven during periods of economic instability.

The euro’s decrease in value and the USD’s increase had a dramatic effect on the financial markets. Those investors who trade in the Forex market realize that such kinds of differences among values may not last for a long time. For this reason, in order to increase gains, they started to use scalping strategies. With the help of these scalping strategies, they are able to make profits even with slight changes in value. In the meantime of the FX market volatility and EUR/USD currency pair price fluctuations, investors can get the most out of their trading process and make additional money. Similar to that there are swing traders as well, who invest their money comparatively for a long time – a couple of hours or days. They, as well, can generate money with this approach.

America is a net exporter, while Germany is in its first trade deficit in almost a quarter of a century. Stronger U.S. interest rates and a more pro-American trade balance contribute to the dollar’s long-term strength.

With the euro EUR= down 0.8% to $1.0184, the dollar index increased by 0.498 percent to reach $107.04. Earlier, the index reached a high of 107.27 while the euro fell 1% to a low of $1.063.

A full restoration of Russian gas supplies via NordStream 1 was no longer seen as the most probable scenario by Goldman Sachs.

With inflation at 8.6 percent in June, ECB president Christine Lagarde has faced an agonizing choice for months: raise interest rates boldly, even if it means increasing borrowing costs for southern European countries and jeopardizing their economic recovery; or going slower and risking that the economy will enter a spiral from which it will be difficult to escape.

Many economists predict that the euro will soon trade at a 1:1 ratio. Rising oil prices, a conflict between Russia and Ukraine, and patchwork global central bank policies have all contributed to the abrupt transition from euro supremacy to near-parity. European economies, however, are still dealing with inflation and labor dispute issues.

What will be in the future?

In the words of Berenberg’s Moritz Paysen, “the euro is not simply being weighed down by the prospect of non-delivery” of gas.

“The already high energy expenses are a stumbling block for many families. Europe’s energy expenses are far greater than those in the United States “Paysen was also included.

Investors’ attention remained focused on the disparity between the tightening cycles of central banks across the Atlantic.

The euro’s value versus the Swiss franc fell to its lowest level since the SNB’s removal of the currency control in 2015.

Even though the Euro’s price struggles nowadays, it should be stated that there are some analysts as well who think that this process isn’t going to last for a long time and the EU currency is going to rebound. However, because of the Russia-Ukraine war, which intensifies from time to time, the recovery of the Euro may be delayed. Similar to the U.S. Fed, ECB also has to increase the interest rates, in order to avoid recession and worse results.