The euro ends in 2023 at around 1.11 USD. After two difficult years, when it fell below parity against the greenback (towards the end of Summer 2022), our currency is back in some colours.
The reason is simple: the sharp increase in the strength of the US dollar resulted from the sharp tightening of the US monetary policy, with interest rates rising faster and higher than those of the European Central Bank.
This logic is reversed today: investors are betting on a Federal Reserve that would lower its key rates much faster than the European Central Bank. In such a scenario, the interest rate differential separating the two currencies – and still playing to the greenback's advantage – would collapse.
This is what is pushing the euro to levels of USD 1.11, the highest since July.
Be careful, though: while it is true that the interest rate differential will be under pressure, it is also true that the growth prospects are much more favourable for the United States than for the euro area.
In the face of a challenging economic situation, European exporting companies would find it difficult to bear a too-strong euro, undermining competitiveness already under intense pressure due to wage growth and other costs, notably energy.
In addition, the trade balance between Europe and the United States, which has long been unfavourable to the latter – putting the US dollar under pressure – is now closer to balance.
The fact that Europe now imports an essential part of its energy from the United States is a big part of this. These factors lead us to believe that the US dollar still has good assets against the euro.
Given the current returns on offer, we continue to invest in US debt.