Forecast for EUR (Euro) in 2022; EUR performance against main currencies

This article looks at the trend in the Euro forecast in 2022.

2021 US dollar USD Forecast

Bank forecasts for the EUR in 2022

  • The value of the Euro has been steadily falling across most of 2021. Analysts at the major banks broadly agree that the value of the  Euro could continue to fall in 2022.
  • Analysts at ING don’t think that the Eurozone economy will grow as quickly as in other countries such as the US so the euro could fall further.
  • Analysts at HSBC believe that interest rates are unlikely to rise in the eurozone in 2022 but they will in other countries. This could pull the euro lower. 
  • The Canadian Imperial Bank of Commerce are also of the view that the euro will weaken because of relatively low interest rates.

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2021 US dollar USD forecast Image of Golden Gate Bridge

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What’s the impact of a weak Euro (EUR)?

  • A weak Euro is good news for exporting companies in the Eurozone. It is also beneficial for those countries which import from Europe, as the products and services that they buy will be at a cheaper rate.
  • A weaker pound is not beneficial for those overseas  countries which export to the Eurozone. This is because the lower value of the  euro means that buyers within the eurozone can purchase less. 
  • Europe’s largest trading partners are China, US, UK and Switzerland.

What’s the impact of a strong Euro (EUR)?

  • A stronger euro means that imports are relatively cheap which is good news for Eurozone countries and businesses that import goods from abroad. 
  • It is also beneficial to overseas countries which export goods to the EU as these countries are able to buy more..
  • Exported goods and services  become more expensive for international buyers which could mean that demand falls.

What are the key influences on EUR forecasts in 2022?

  • The decisions that the European Central Bank  takes move the Euro. When the central bank looks to raise interest rates, the Euro rises. The ECB will consider increasing interest rates when the economy is strong.,
  • Similarly, when the ECB looks to lower interest rates when economic growth sows, the Euro falls.
  • Politics are also very important for the euro. Should a party which opposes the euro currency gain power, the Euro could fall

1. US Economy

  • Germany, France, Italy and Spain represent 75%of the Eurozinr’s $13.3 trillion GDP and Germany and France account for almost 50% of the eurozone’s GDP. The health of these economies influence the value of the Euro.
  • After assessing the economy, the central bank decides whether to raise interest rates or not. This decision is key in raising the value of the Euro, or not.
2021 US dollar forecast

 

2. Politics

    • Politics can play an important role in influencing the euro. This was clear from the German elections last year. 
    • When political uncertainty arises this can pull the value of the Euro lower. On the other hand, periods of political stability across the region buoys the value of the Euro.
    • Brexit has had a bigger impact on the value of the pound than the Euro.

3. Imports and Exports

  • The Euro and the US Dollar are  the world's most traded currencies. 
  • The Euro trades inversely to the US Dollar. So when the US Dollar rises in value the Euro often declines and when the US Dollar falls in value the Euro often rises.
  • When the US dollar falles, the Euro often rises and vice versa.
  • Should the US dollar rise in 2022 then the Euro could fall.

EUR/USD performance in 2022

  • Investment banks widely expect the Euro to fall versus the US Dollar next year. 
  • This is because the Eurozone economic recovery is expected to be slower than the recovery in the US. 
  • ING forecasts that EUR/USD will fall to 1.10 by the end of 2022.
  • Citibank expects the EUR/USD to fall to 1.12 over the next 6-12 months

 

EUR/GBP performance in 2022

  • Analysts at major banks broadly agree that the Euro could fall versus the Euro in 2022 despite ongoing Brexit tensions.
  • Should the UK economy outpace the Eurozone in 2022 the Pound could rise further.
  • ING  expects EUR/GBP to fall to 0.82 by the end of 2022.
  • CIBC see EUR/GBP falling to 0.83

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EUR against other currencies

  • The economic recovery  from the pandemic in New Zealand has been particularly strong despite another COVID hit in 2021. The New Zealand labour market recovery was notably solid and could continue into 2022.
  • A strong labour market and more broadly a strong economic recovery could continue to support the New Zealand dollar in 2022
  • COVID hit the Indian economy hard in the early part of 2021, but the economy is recovering well and could continue to grew solidly in 2022.
  • Should the Indian economy grew at a faster rate than the economy in Europe, the Indian Rupee could rise against the Euro.
  • The Japanese yen is a safe haven currency which often performs well when economic or geo-political risks increase.
  • There are plenty of potential risks that could play out and boost the yen in 2022. These include revival of COVID lockdowns, US-China political risk and also financial market risk to name a few. Should these risks rise, demand for the yen could rise.
  • On the other hand, should global risks decrease, the euro could strengthen versus the yen.

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By Ileana Ionescu Updated December 9th, 2021