Many factors have contributed to the dollar's weakness in recent months, but chief among them has been the improved outlook for the euro. Expectations of tighter monetary policy from the European Central Bank spurred expectations that the spread in interest rates between the US and Europe could continue to narrow, which helped strengthen the euro. Falling energy prices also helped curb inflation, helping to improve terms of trade in the eurozone, another important factor influencing the currency's valuation. Interest rate spreads have historically had a huge impact on exchange rates, as higher interest rates in a given country usually make its currency more attractive to foreign investors. In 2022, the dollar benefited enormously as the Federal Reserve led the developed world in the pace of interest rate hikes. Investors around the world have previously turned to the dollar as a port of call during a storm as volatility gripped international equity and bond markets in the wake of the coronavirus pandemic, adding further momentum to the dollar's historic rally. However, traders' expectations have changed markedly in recent months since the dollar peaked in September. The slowdown in inflation in both Europe and the US reinforced the view that the heavily beaten euro is poised to strengthen after hitting parity with the dollar last year.