EUR/USD: Energy crisis justify increased risk premium on euro for the time being – Commerzbank

EUR/USD made significant gains on Tuesday and only just missed parity. How sustainable is the euro strength? Economists at Commerzbank believe that the shared currency should remain under pressure as energy crisis is far from over.

Market may underestimate the economic pain energy crisis will cause

“The recovery is likely to be attributable to a weaker US dollar, which weakened after the disappointing US purchasing managers' index for the manufacturing sector and the significant decline in job openings in August.” 

“A strengthening of the euro may also have helped. It seems to me that the market is somewhat more optimistic that the eurozone will weather the energy crisis this winter more smoothly than previously feared.”

“It remains highly uncertain to what extent the current energy crisis will continue to weigh on Europe's economy in the longer term, which in my view justifies an increased risk premium on euro exchange rates for quite some time to come.”