USD: Still feeling the heat - Commerzbank

Yesterday, the EUR/USD exchange rate could soon reach 1.18 again. The Euro (EUR) promptly took off and climbed to 1.1744 against the US Dollar (USD). It then lost some momentum, but this was enough to achieve a closing price of over 1.17 - the highest since 2021, Commerzbank's FX analyst Volkmar Baur notes.

EUR/USD has risen by more than 13% since the beginning of the year

"This strength of the euro against the US dollar is consistent with the recent trend, and we have previously outlined our structural reasons for expecting a higher EUR/USD exchange rate, also in this space. However, looking at the last 10 years, it's clear that an exchange rate above 1.15 is currently unusual. For most of the last decade, EUR/USD fluctuated within a relatively narrow range. On 66% of trading days over the past 10 years, the closing price was between 1.05 and 1.15. And only on around a quarter of trading days did it trade above 1.15."

"This also means that EUR/USD has behaved very differently over the last ten years than it did in the ten years before that (i.e. from 27 June 2005 to 26 June 2015). During that period, EUR/USD traded within the 1.05-1.15 range on just 4% of trading days. Most of the time (41%), it traded between 1.30 and 1.40. This also shows that EUR/USD traded in a wider range overall during these years than it has since mid-2015. In order to cover around two-thirds of trading days, the range would need to be almost doubled to 1.25-1.43. All this happened amid significantly higher volatility. While historical 3-month volatility over the past 10 years was only 7.6%, it was significantly higher at 10.2% in the 10 years prior to that."

"In the short term, therefore, the movement in EUR/USD is quite impressive. After all, the euro has risen by more than 13% against the US dollar since the beginning of the year. However, looking further back, larger movements and higher levels in EUR/USD are not unusual. Perhaps we are simply entering a phase in which rapid changes in the exchange rate and higher volatility become the norm again."