Forecasts on Euro-to-USD Exchange Rate Based on the ARIMA Model

In the past few years, the Euro-to-USD exchange rate fluctuated significantly. Especially during periods of the Russia-Ukraine conflict and the European energy crisis. Since 2021, a clear downward trend in the USD/EUR exchange rate has been witnessed. This rate reached a historically low of 0.9616 on September 27, 2022. In 2023, the rate bounced back slightly to around $1.07 for the moment. The Euro-to-USD exchange rate forecast is conducted in this paper. Data from the Federal Reserve was applied as the training data. ARIMA models were constructed in R to do the predictions with examinations. Both the seasonal ARIMA model and the non-seasonal ARIMA model provided similar results. The Euro-to-USD exchange rate was predicted to maintain at 1.06 for the next eight weeks. The fluctuations of the predicted time series were within 0.01. Exchange rates are critical in the economy worldwide as International trade, investment activity, fiscal and monetary policy are all closely related to exchange rates. This research paper aims at providing forecasting results for both investors and policy-makers. Ideally, they can be inspired to adjust their strategies and contribute to a better economic environment.