The current market situation has surprised even the most experienced investors. The value of the dollar against the euro is the highest in history and has just exceeded 1.00. Why did this happen? Does this mean a new reality? Moreover, what awaits us in the near future, and is it possible to make money on the high exchange rate of the dollar against the euro?
FED vs ECB
Exchange rates are the result of the interaction of numerous large and small factors. The dollar-euro pair has reached a value of 1.00 mainly because of interest rates, which are set by central banks.
Changing interest rates helps to control the amount of money in circulation. When they are low, many people are willing to borrow money. When they rise, the demand for cash falls. In the long term, this is a way to control inflation. Everyone knows that it is currently high, so the amount of money should be reduced.
The Fed has raised interest rates to 2.5%, while in Europe they are 0, causing the dollar to gain in the eyes of investors, while the euro loses.
Safe haven
During an economic boost, people often choose to invest in less developed countries and regions. Money flows in streams to Africa, South America or Asia. The situation changes when there is a threat and a crisis arrives. At such moments, capital flows to safer places, and the euro dollar and Swiss franc gain over less reliable currencies.
We mentioned that capital is migrating to the dollar, euro and franc, but is it happening at the same speed? Not exactly. In a situation of economic uncertainty, the dollar is strengthening against the euro and other certain currencies. According to many investors, the USD is simply safer.
Macroeconomic indicators
The euro dollar pair's performance is also influenced by many other factors, such as the economic conditions inside the US and EU. According to the latest reports, US exports have improved, which positively affects the USD against other currencies. The situation is also not improved by the weakening of investment perspectives in Europe. As we mentioned earlier, people feel the risk and do not want to lose their money.
Gold
There are some old correlations in economics. One of them is the correlation between dollar rates and gold prices. When the dollar loses, gold gains, and vice versa. This is also what is happening now. Gold is relatively cheap, and the rates are back to the price levels of a decade ago.
In our article about gold, we wrote that it is considered the safest form of capital investment. Why then is gold losing? This, too, has an explanation. It's not only Americans who invest in gold, and if the dollar gains, all commodities and stocks quoted in dollars become less attractive, because you have to take into account differences in exchange rates. Of course, there are events that cause gold prices to rise regardless of the value of the dollar. This happened, for example, at the beginning of the Covid-19 pandemic and the war in Ukraine. Just as importantly, in both cases the dollar euro exchange rate was rising.
Perspectives
With the surge in the price of an asset, many investors expect a sharp trend reverse, which often turns into a self-fulfilling prophecy: people sell stocks or currency because they expect a collapse, thus triggering it themselves. However, we are concerned that over the next few weeks, the USD will continue to win in the dollar vs euro duel.
Making money on the dollar euro pair
If you've made some money with the Paidwork app, you may be thinking about investing it. Although currencies are considered a very risky investment instrument, they allow you to make huge profits.
If you've read the article on investing basics, you probably know that in case you're interested in exchange rates, you should use CFD or forex. Remember, however, that this article is not investment advice and should not be treated as such. Every investment involves risk and decisions about them should be made entirely on your own.
