Exchange Rate in Europe in 2022
The nature of the Russian war in Ukraine, the impact of the current sanctions, and prospective actions are all key factors influencing the outlook for the euro area economy and inflation. The euro (EUR) has declined almost 10% of its value against the US dollar (USD) so far this year (YTD), as Europe's economic outlook has significantly deteriorated.
EUR and USD
In the third week of August, as increasing concerns about an economic slowdown, particularly in Europe and China, the euro fell to about $1.02. Prices for non-energy commodities are estimated to grow in 2022 and decline in 2023–2024. Since early July, the euro has been trading relatively close to parity as there are growing indications that the Euro Area economy is entering a recession. At the same time, inflation is continuing to reach record highs, the energy crisis is far from over, and the External Commercial Borrowings (ECB) is expected to raise borrowing costs in the coming months.
The major downtrend that commenced in May 2021 for the euro (EUR/USD) against the dollar is still currently present. The single currency indicated a rebound toward the dynamic resistance of the 50-day moving average, where it received strong selling pressure, after reaching the parity level (1.00) in mid-July 2022. The 50-DMA (Direct Market Access) has been a significant technical challenge for the EUR/USD pair to conquer since the end of February 2022.
The yield differential between the US Treasury bond of the same term and the German 2-year government bond is still primarily negative, indicating the continued presence of monetary policy differences between the Fed and the ECB. In response to economic concerns about an approaching European recession-driven on by the oil crisis and rising inflation, the market considers that the External Commercial Borrowings (ECB) cannot raise interest rates any further than the Federal Reserve (Fed). However, the most recent price movement in the EUR/USD pair fell short of decisively breaking the 1.03-1.035 range. In the near future, it could be an indication of a bear recovery, which would probably force the pair to test parity levels again.
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