The upcoming Federal Reserve meeting is slowly leading to a rise in demand for the US dollar. The markets expect the Fed to announce another increase in its key interest rate. The only question is how dramatic the rate rise will be.
The US dollar hasn’t been this strong in five years. The exchange rate against the euro has fallen below $1.06 per euro, so it is not entirely impossible that parity will soon be established between the two currencies. If that happens, it would be the first time in almost 20 years.
The impact of Fed rate hikes
The US dollar has been riding the wave of expected and ongoing interest rate hikes by the US Federal Reserve in recent months, whereas the European Central Bank has so far been reluctant to talk about interest rate hikes. So there is a chance for the dollar to actually get to parity with the euro soon.
Uncertainty in Europe strengthened the dollar against the euro
The dollar has strengthened by almost six per cent against a basket of currencies during April. Since the beginning of this year, the yen has appreciated by almost eight percent against the euro. In short, the US currency is still seen as a safe haven, helped by both the energy crisis facing the European Union and the war in Ukraine, which is increasing uncertainty in Europe.
