tell me what happened in the last 8 months
As others have mentioned, the spike in the inflation has caused central banks to increase interest rates. The Federal Reserve (US central bank) has acted most aggressively raising rates from 0 on January 1, 2022 to 4% today.
The EU central bank on the other hand has raised its rate from -0.5 to 1.5%. As a result today, should you wish, you can exchange your EUR for USD and get double the money, which is undoubtedly what some major banks did. Furthermore, the Fed has signaled that they will continue to aggressively increase the interest rate until inflation subdues (whether you believe they will follow through is another story altogether). Whereas the European Central bank has been much slower to act and many believe that they can only raise the rates so far before triggering a big recession in the Eurozone. Therefore, the market believes the USD is a stronger currency at the moment (hence the 20-year lows of the EUR against the USD).
The other factor weighting negatively against the EUR is the fact that USD is seen as a safe heaven during a recession. Therefore, most major currencies have fallen against the dollar in the past 8 months, including in countries where the interest rate is well above 10% (ex. Poland, Hungary).
what happened in the last few days
The consumer inflation report released last week showed a slowdown in inflation. Many believe that this will cause the Fed to slow down their rate increases and as long as inflation continues to go down, eventually to stop or even reverse the increases. I can tell you that if that report had gone the other way, we would be seeing historic lows across the board right now.
and why and what will likely happen in the near future (I mean, what plays the most significant role).
If the trend of the decrease in inflation in the US continues we may start to see the reversal. On the other hand if inflation goes back up we will most likely see a reversal. The other factors I think will be:
- the Fed rate increase in December
- EU Central bank increase in December
- Economic data (
GDP growth/decline, employment numbers, consumer spending, inflation)
The reason it is so hard to predict what the exchange rate will do is because you are dealing with two huge entities (US and the EU) and one of those entities consists of multiple countries and you are making a bet on what a lot of different indicators for those entities will show over weeks and months. Day trading Forex is not for the fainthearted.