During 2021 the US dollar was clearly the winner of the permanent fight it finds itself in against the single currency, as it had already happened in 2014 when the EUR/USD currency pair corrected from $1.40 to very close to parity, all because of the existing divergence in the monetary policies of the Fed and the ECB, with the US central bank starting this year a more hawkish policy towards the normalization of its policy, while the ECB was still increasing its stimulus program, which resulted in a clear relative strength for the dollar which was reflected in the value of the currency pair.
Last year something similar happened, and I mean similar because it wasn’t exactly the same, because this time there wasn’t an absolute divergence, but an intermediate one, as the Fed started to withdraw the stimuli while the ECB kept them, did not increase them. But despite the difference for 2014, the change of direction of monetary policies caused again in 2021 its impact on the EUR/USD, taking it from $1.23 to $1.12. At this time and in the visible horizon, everything remains, FED will continue to reduce stimuli and the ECB will continue, despite inflation in the Eurozone being well above the desired levels, so the relative strength of the dollar should remain, however it is important be aware of any change in this status quo, whether by the ECB or the FED, as if the ECB indicates that it will also start withdrawing stimuli, this will bring the strength of both currencies closer.
