The euro/dollar exchange rate has fallen below the 1.05 mark

It hadn’t happened since the end of 2022, or just under two years ago

Euro/Dollar exchange: Strong Dollar or Weak Euro?

What stands out is the particularly high level of the Dollar Index, which measures the fluctuation of the dollar’s value against a basket of other global currencies.

However, the fact is that the euro plays a significant role in that basket, so the fluctuation of the Dollar Index is not enough to understand if the decline of the euro against the dollar is due to a strengthening of the latter, or a drop of the former

It is then advisable to compare both with a currency that is usually quite stable, like the Swiss franc

Compared to the Swiss franc, today the euro is slightly rising, after the decline of the past few days

The current value of 0.93 CHF per euro is in line with that of Tuesday, even though it has fallen from 0.94 at the beginning of the month

During 2024, the euro actually appreciated against the franc until May, and then subsequently depreciated, effectively returning to the same levels as at the beginning of the year

The dollar, on the other hand, is clearly appreciating against the Swiss franc

From around 0.86 CHF at the end of October, it has now risen to 0.89, even though during 2024 it had a trend similar to that of the euro: it increased until April, then fell, but unlike the euro, it appreciated significantly in the last two months

Therefore, the main cause of the depreciation of the euro compared to gold in recent weeks is primarily to be found in the strengthening of the dollar, rather than in a weakening of the euro

The Trump Effect

In turn, the temporary strengthening of the US dollar is probably due to the effect of the victory of Donald Trump in the recent presidential elections.

Something similar had already happened in 2016, when Trump became president for the first time

So the Dollar Index, after climbing up to about 98 points before the elections, with Trump’s victory rose further first to 101 points in the second half of November, and then again up to 103 points in the second half of December

Then, however, starting from early January 2017, a long decline began that brought it back below 90 points in just over a year

This year, the Dollar Index had risen to 106 points in April, but then it had fallen, reaching 100 points in the second half of September

As the elections approached, however, it rose, first to 104 points, and then after Trump’s victory to over 105 points

As it happened in 2016, afterwards it rose again, surpassing 106 points about ten days ago, and then also surpassing 107 points

To tell the truth, for a moment it even reached 108 points, but then it fell

The forecasts on the euro/dollar exchange rate

Since it is primarily the strengthening of the dollar that is causing the EUR/USD exchange rate to fall, it is advisable to keep an eye mainly on the Dollar Index to understand what might happen

In the short term, it could also continue a trend similar to 2016

In other words, although it might also correct slightly now, dropping a bit, it is also possible that the annual highs will be updated in December

However, between December and January it might start to decline, and it could then do so for several months, even a year

The final goal always seems to be those 90 points that it reached both in 2018 and in 2021, and as happened in the past, it could take several months to get there

So while on one hand it is possible that the euro may fall a little further against the dollar from now until the end of the year, perhaps approaching parity, it seems likely that in the following twelve months the trend could reverse, and the euro could strengthen again against the dollar

The historical

When the euro debuted on the markets, in the early 2000s, its market value was less than $1

However, starting from 2022, a long climb began that led it within six years to record all-time highs at 1.6$.

It must be said, however, that that was the year of the great crisis of 2008, and that afterwards the euro almost always fell against the dollar, even though it never returned to the $0.84 of 2001

In fact, starting from 2015, it seemed to have substantially stabilized around $1.1, although it later had other fluctuations

For example, in 2018 it had returned to $1.25, and in 2022 it had even returned slightly below parity. It hadn’t dropped to $1.04 since November 2022, so it might have almost reached the bottom of this phase