EUR/USD: Euro to continue appreciating gradually toward long-term equilibrium – BBVA

According to the Research Department at BBVA, the US dollar is no longer reacting so positively to strong data from the US. Over the long-term, they see the EUR/USD appreciating very gradually, reaching the 1.25 area in 2022. 

Key Quotes: 

“The tables have recently turned for the common European currency as it once again moves toward appreciation. Following the period of weakness it experienced earlier this year, the euro has appreciated by over 3.5% so far this quarter, exceeding 1.22. This appreciation occurred earlier than expected.”

“Investors are turning toward European asset markets at the same time confidence in a Eurozone recovery is intensifying. On the other, the strength of the dollar during the first quarter of this year seems to be disappearing, and the currency is no longer reacting as positively to strong data from the United States.”

“Once the end of the COVID-19 crisis is closer and recovery is underway, the key will be its consolidation and the way in which the two large central banks—the Federal Reserve (Fed) and the European Central Bank (ECB)—begin to reverse their expansionary policies, as well as the time at which they begin to reduce asset purchases.”

“In 2022, we expect the euro to continue appreciating very gradually relative to the dollar toward long-term equilibrium levels, which could be around 1.25.”