Year of Parity, the Euro in 2022
2022 was the year that the Euro fell below the parity level against the US dollar. That means 1 EUR = 1 USD.
The last time the Euro fell below the parity level was in Jan 2000 (22 years ago). And that time, it remained below parity for almost 3 years before breaking higher again.
Fortunately, on this occasion, the time the Euro spent below parity was considerably shorter, with the price breaking higher, in 4 months.
The early 2022 forecast for the Euro had already been a continuation of the downside, given that it had been dropping since 2021 from the 1.24 price area down to the 1.14 level. However, there were several factors that added to the massive decline in the EURUSD this year.
In particular, the strength of the DXY, the Russian-Ukraine Conflict, and the increasing concern over the energy supply from Russia.
(you can read more about the broad influences on the global market sentiment in my DXY review, in the link below)
The European Central Bank (ECB) was considerably late in the game to increasing interest rates, despite inflation climbing in the Eurozone.
In July, the ECB raised rates by 50bps (expected 25bps), and CPI for the Eurozone was at 8.6%. However, the rate increase saw little impact as the border conflict continued to weigh on the Euro. The EURUSD was still testing the parity level.
As the Euro broke parity briefly, a 75bps rate hike in September saw the EURUSD reclaim some ground, but this was short-lived. As Putin announced a partial mobilisation of the Russian army, escalating and wiping out all hopes for a quick end to the border conflict.
This move saw the Euro break the parity level to reach a historic low of about 0.9550. With many market participants expecting an even greater downside.
In fact, the Euro was somewhat saved by the DXY. Weakness in the DXY toward the end of September saw the Euro trade between the 0.9550 and 1.00 price level with higher volatility.
In October, the EBC raised rates to 2% BUT saw the EURUSD drop significantly following the release of the decision. This was due to the markets anticipating a "pivot" and slowdown in future rate hikes from the ECB.
Finally, in December, the ECB raised to 2.50% but the focus was not so much on the 50bps hike. Rather it was on the very hawkish comments from Chair Lagarde, where she highlighted that
The Euro currently trades along the 1.0645 price level. Will 2023 see the Euro recover strongly? Reclaiming the high of 2022 or more?
Stay tuned for the 2023 outlook!
The last time the Euro fell below the parity level was in Jan 2000 (22 years ago). And that time, it remained below parity for almost 3 years before breaking higher again.
Fortunately, on this occasion, the time the Euro spent below parity was considerably shorter, with the price breaking higher, in 4 months.
The early 2022 forecast for the Euro had already been a continuation of the downside, given that it had been dropping since 2021 from the 1.24 price area down to the 1.14 level. However, there were several factors that added to the massive decline in the EURUSD this year.
In particular, the strength of the DXY, the Russian-Ukraine Conflict, and the increasing concern over the energy supply from Russia.
(you can read more about the broad influences on the global market sentiment in my DXY review, in the link below)
The European Central Bank (ECB) was considerably late in the game to increasing interest rates, despite inflation climbing in the Eurozone.
In July, the ECB raised rates by 50bps (expected 25bps), and CPI for the Eurozone was at 8.6%. However, the rate increase saw little impact as the border conflict continued to weigh on the Euro. The EURUSD was still testing the parity level.
As the Euro broke parity briefly, a 75bps rate hike in September saw the EURUSD reclaim some ground, but this was short-lived. As Putin announced a partial mobilisation of the Russian army, escalating and wiping out all hopes for a quick end to the border conflict.
This move saw the Euro break the parity level to reach a historic low of about 0.9550. With many market participants expecting an even greater downside.
In fact, the Euro was somewhat saved by the DXY. Weakness in the DXY toward the end of September saw the Euro trade between the 0.9550 and 1.00 price level with higher volatility.
In October, the EBC raised rates to 2% BUT saw the EURUSD drop significantly following the release of the decision. This was due to the markets anticipating a "pivot" and slowdown in future rate hikes from the ECB.
Finally, in December, the ECB raised to 2.50% but the focus was not so much on the 50bps hike. Rather it was on the very hawkish comments from Chair Lagarde, where she highlighted that
- The ECB saw significant increases ahead
Should expect 50bps hike for period of time
Anything thinking ECB is pivoting is wrong
The Euro currently trades along the 1.0645 price level. Will 2023 see the Euro recover strongly? Reclaiming the high of 2022 or more?
Stay tuned for the 2023 outlook!
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