We expect that oil and gas prices will stay high, which will put pressure on the euro compared to the US dollar. However, the euro is unlikely to fall quickly because traders have already sold their euro positions. Furthermore, high energy prices have led to hawkish1 pivots in central banks, with most becoming more cautious or even raising rates. With the ECB taking a more hawkish stance than the Fed, this is likely to support the euro and drive it higher against the dollar.
When energy prices eventually fall, the euro should get stronger again. We expect the euro to appreciate against the US dollar at the end of this year (about 1.20) and even more by the end of 2027 (about 1.25).
Georgette Boele – FX & Oil Strategist
1 Hawkish refers to a central bank stance favoring higher interest rates to combat inflation
