(BFM Bourse) – The European currency has suffered against the greenback this year. But the European Central Bank’s catch-up in terms of monetary policy vis-à-vis the US Federal Reserve could bring theeuro to regain color during 2023.
The king dollar suffered a little at the end of 2022. After going above parity during the summer against theeuroit has conceded ground over the past few weeks, to the point of currently trading at 0.9340 euro
. The fact remains that over the whole of 2022, the greenback has shaken up the currency of the zoneeuro, buoyed by rate hikes by the Federal Reserve (Fed) as well as its status as a safe haven. To the point of recording a gain of 6% against the euro
over the year.
The European currency is not an isolated case. The dollar appreciated against all major international currencies. The US dollar index (DXY), which measures the evolution of the currency across the Atlantic against a basket of currencies, rose by nearly 8% in 2022.
Dollar strength could fadeCan 2023 be a turning point? It’s possible. In a survey published in mid-December by Bank of America, a very large majority of managers questioned considered the dollar overvalued, unlike theeuro . Although it should be noted that when this survey was published, the dollar was trading at a slightly higher level, at 0.9489euro
.
“We consider 2023 as a year conducive to the diversification of currency positions, as the strength of the dollar should fade,” said Vincent Manuel, investment director at Indosuez Wealth Management. “The combination of a U.S. monetary policy reversal and a renewed appetite for risk will weigh on the greenback,” judge SwissLife Asset Managers.If the Fed raises its rates further over the next few months, it will probably complete its cycle of increases during 2023. And this before the European Central Bank (ECB) which should thus catch up with its “lag” on the American central bank, this who would wear theeuro
.
A more aggressive ECB Especially since the last meeting of the ECB, in mid-December,caused an electric shock . Its president, Christine Lagarde, then made it clear to investors that the market was not counting on rate hikes high enough for inflation to return to below 2% in the area. euro
within an acceptable horizon. This has led many financial intermediaries to raise their “terminal rate” forecasts, ie the rate that the ECB will reach at the end of this cycle of increases. Deutsche Bank, for example, went from 3% to 3.25%. “We expect policy interest rates to peak in June 2023 in the United States and to rise over a longer period in Europe. Yield spreads will therefore decrease. All this argues in favor of investments in the areaeuro
“, develops Professor Jan Viebig, co-director of investments at Oddo BHF, in a recent note.“In 2022, the dollar and the Swiss franc benefited from the flight to supposedly stable currencies following the supply shock. We believe that the latter will end during 2023. If this hypothesis is true, the safe haven currencies of 2022 – the dollar and the Swiss franc – should correct again and theeuro
to appreciate”, adds the financial intermediary.No euro
at $1.30
Faced in particular with the determination shown by the ECB and Christine Lagarde, the bank UBS revised its forecasts on the euro-dollar on December 20th.If the Swiss bank expects the dollar to recover against theeuro , it would be short-lived. UBS anticipates a euroat $1.02 at the end of March, against 96 cents in its previous projections, and $1.06 currently. The establishment estimates that the European single currency will then rise to 1.05 dollars at the end of June, then to 1.07 dollars at the end of September and to 1.10 dollars at the end of December 2023, a level that the euro
has not reached since April 2022.
The bank considers that the market could still be surprised by the magnitude of the Fed’s rate hikes at the start of the year, which could allow the dollar to regain some ground. Nevertheless, the switch could take place from the middle of 2023. In the second half of the year “the markets could consider that the Fed is making rate cuts while the ECB will still be fighting inflation”, anticipates UBS. The trade balance of the areaeurowhich obviously impacts the vigor of theeuro
is expected to improve over the year, along with global growth, according to the institution.
“Given all of this, we expect the Eurodollar to recover somewhat, but a rise towards the fair value of 1.30 is unlikely in our view. world with a strong demand for European exports”, develops the Swiss bank.
Classes were stopped late Friday afternoonJulien Marion – ©2023 BFM Bourse