So far this year, the US dollar has strengthened more than eight percent against the euro. Now more and more people think that the two currencies will be the same during the year.
HSBC Holding and RBC Capital Markets believe that the dollar and the euro will reach parity or parity during 2022, writes Bloomberg.
In this case, it would be the first time since December 2002 that the currency cross between the two currencies has reached 1.
Last week, the price of one euro fell to $1.03, which is a very strong historical level for the dollar.
The euro in itself is not an attractive currency at the moment, currency analyst Francesco Pesol at ING Groep tells Bloomberg.
But it’s not just brokerages that think parity can happen, hedge funds also drew attention this past month.
In the options market, hedge funds have placed a total bet of about $7 billion, or 68.5 billion kroner, that the dollar will catch up with the euro over the next 12 months.
I think the euro will get stronger
DNB Markets believes that the level of the EURUSD (the cross currency between the two currencies) is now “too low”, and “too low for fundamentals”. That’s what interest rate and currency analyst Engfield Borgen Gerdy wrote in her weekly currency report on Monday.
Then I wrote that the brokerage firm expects the euro to rise as the European Central Bank (ECB) approaches its first rate hike. They believe that this will prevent the EURUSD from falling further.
Based on this, DNB Markets expects the EURUSD to reach 1.08 in three months, and 1.10 in twelve months.
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War and the slow central bank
The US dollar has gradually strengthened by about 8.5 percent, or a dime, since the new year. The fall intensified in the period following Russia’s invasion of Ukraine on February 24 of this year.
The war led to further uncertainty about the progress of the European economy. Growth is expected to be lower than previous estimates, but the European Commission will release new forecasts on Monday.
Nor has the European Central Bank raised interest rates yet, as a large number of other central banks did during the first half of the year.
The US Federal Reserve raised interest rates by a total of 0.75 percentage points in its last two meetings, and plans to continue raising rates quickly in the coming months.
The European Central Bank stated that the rate hike will not come until after the purchase of securities is completed, which is what the central bank plans to do in the third quarter. According to Central Bank Governor Christine Lagarde, the exact time of the meeting will be set in June, and that a rate hike could happen quickly after the securities purchase is completed.
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