Euro-to-Dollar Falls to July Low as Energy Prices Support US Dollar

The Euro-to-Dollar exchange rate has fallen to its lowest levels since July as higher energy prices support the US Dollar. According to ING, their forecast for EUR/USD to retreat towards 1.1380 has already been realised, with the pair now testing its lowest levels of July.

ING's Global Head of Markets and Regional Head of Research for the UK and Central and Eastern Europe, Chris Turner, notes that investors are favouring currencies that provide both attractive yields and some protection against a further escalation in energy costs. The Dollar's yield advantage and the relative resilience of the US economy leave it better positioned than lower-yielding currencies during a period of elevated oil and gas prices.

The Eurozone is a major net energy importer, and an extended increase in oil and natural gas costs can weaken the region's terms of trade, squeeze household spending and raise costs for European businesses. As a result, ING expects the Dollar Index to remain supported within its 100.35-101.80 range.