Euro and US Dollar Forecast for Q3 & Q4
2022 has been a year of extremes so far for both the Euro and the Dollar. Soaring gas and commodity prices, uncertainty due to crises in Eastern Europe and in the States, and general mistrust of the economy have all contributed to this.
The rest of the year could be one of the extremes too. Whether you’re into forex trading, stock, or crypto trader, the forecast for the rest of the year could have a big impact on your investment.
US Dollar Performance So Far
The first surprising factor that many didn’t see coming was how well the Dollar would do in the face of a crisis in Eastern Europe. Not only was it able to maintain its position, but it was able to rise to its highest point in 20 years.
The Dollar has seemingly stolen back the crown of being a safe-haven currency. With uncertainty across the globe, and investors pulling away from the Euro due to its close connection with Ukraine, the Dollar has become the investor’s currency of choice again.
What Has Been Driving Growth?
As mentioned, investors from across the globe have always put more faith in the greenback compared to the GBP or Euro. The Dollar tends to hold onto its strength better than other currencies and is also almost always perfect for short or long-term investments.
One driving factor thus far has been a mismatch in supply and demand. Supply-chain bottlenecks have caused the mismatch, and until it is corrected, prices will continue to rise, and exports will continue to be incredibly profitable.
While inflation has continued to raise concerns, labor shortages and job creation has been the backbone of strength over the past few months. A shortage of workers has also forced businesses to raise wages to get people back into the workforce.
In May, nearly 400,000 jobs were added to the market, far and above the predicted 320,000. This increase in labor has seemingly not only counter-acted the effects of inflation but is improving the currency as well.
The crisis has caused uncertainty across the globe, with many economies and currencies taking a heavy hit for the first few weeks, even months. The effect on the Dollar is two-fold, with one big positive and one negative.
As stated already, the Dollar’s safe-haven status is still intact, but the big negative that is affecting economies is the oil price. The high oil price is hindering the Dollar’s ability to fight inflation; therefore, even though the currency is strong, it is rising alongside inflation and the oil price.
The Euro/USD was at a 7-year low not too long ago due to the events in Eastern Europe; this is due to the Euro taking far more of a hit over the past weeks compared to the Dollar. Europe is also heavily dependent on Russian oil, and with the current bans in place, no oil imports mean a weaker Euro.
There has also been talked of the ECB hiking rates in both July and September. While this isn’t great for consumers in the short-term, foreign investors will want to come in now before the spike. This could lead to more money being put back into the Euro after the exodus that happened a couple of months ago.
What Has Driven the Euro?
As mentioned above, the dependence on Russian oil and gas, as well as Ukrainian food exports, has now drastically damaged the Eurozone. Prices for these goods are now spiraling, inflation is rising, and there is barely any economic growth.
The future for the USD is looking relatively strong. Rates may be going up, but with unemployment numbers dropping and more jobs than predicted being created, the USD will keep hold of its safe-haven title.
On the other hand, though, the geopolitical and economic crisis in Ukraine is going to continue to hinder the growth of the Euro, as well as the Great British Pound, for the foreseeable future.
Until the Eurozone has established alternative methods for importing gas, fuel, and food goods that would have otherwise come from Russia or Ukraine, there is still a chance things could get worse.
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