Kit Juckes, Chief Global FX Strategist at Société Générale, stresses the importance of the terms of trade to the dollar’s strength. The euro won’t bounce until a devastating term of trade divergence stops.
Energy prices are helping the dollar and crushing the euro
“As oil prices rose in the run-up to the GFC, both European and US terms of trade suffered, but this time around, the relative effect is completely different. From a US perspective, this highlights the positive impact on the dollar of rising energy prices; for the euro, it just highlights the scale of the challenge confronting the continent.”
“I can’t see a significant rebound for any European currency until we get through the gas crisis.”
“Our current forecasts look for EUR/USD to trough in Q3, in a 0.95-1.00 range, and while that level may be about right, it’s harder now, to see a bounce before the end of the year.”
