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Many analysts have raised the possibility of the dollar depreciating in the future against the euro, but also against other currencies. Economists at Natixis examine the variables that seem to have heavily influenced the dollar’s exchange rate. 

EUR/USD has reached levels last seen in 2018, not far from that year´s peak at 1.2554. The pair has turned bullish after breaking above a descendant trend line coming from 2008 and points to 1.2750.

Key quotes

“We clearly see a negative correlation between the yield spread (United States-Europe) and the dollar’s exchange rate against the euro and a positive correlation between the ratio of the monetary bases (United States/eurozone) and the dollar/euro exchange rate.”

“We note a significant link between the yield spread (United States-world) and the dollar’s trade-weighted exchange rate (the trade-weighted exchange rate increases when the dollar appreciates); and a significant link only since 2010 between the ratio of the monetary bases and the dollar’s trade-weighted exchange rate.”

“There is no significant correlation between the growth rate gap and the dollar/euro exchange rate.”

“We see significant correlations with the expected sign between the US current account balance and the dollar/euro exchange rate and the dollar’s trade-weighted exchange rate, but no significant correlation of the right sign with US external debt.”

“We see a significant link and the expected sign between risk aversion and global growth and the dollar’s exchange rate (both dollar/euro and trade-weighted exchange rates).”