The euro crumbled below a new benchmark in early trading Tuesday, pushing below $US1.08 for the first time in 11 years. Less than a week ago, it was above $US1.10.
And just 12 months ago, the euro reached an 18-month high against the dollar, at nearly $US1.40 It’s plunged 22.5% since then.
Here’s how it looks:
The rapid decline of the euro is raising questions about whether and when the two currencies might reach parity again, according to the FT. They haven’t been one for one since 2002.
Here’s the FT:
“It’s a risk that the market will move towards parity,” says Jane Foley, senior FX strategist at Rabobank. “It’s something which may happen during the course of the year.”
As Divyang Shah, global strategist at IFR Markets, puts it: “The trend remains your friend on this one and we see a strong possibility for the unit to trade at parity this year.”
Oxford Economics and Goldman Sachs had forecast that the euro will drop to parity against the dollar by the end of 2016, though the speed the euro is currently weakening implies that could happen a lot sooner if it continues.
Many forecasters started the year with a $US1.15 forecast for the euro at the end of the 2015. Unless the euro strengthens considerably from now on, that’s an not looking like a very good projection.
Generally, the European Central Bank’s new quantitiative easing programme should tend to weaken the euro and the Federal Reserve’s likely rate hikes should strengthen the US currency: When investments made in dollars can get a better return through higher interest rates, demand for dollars goes up, and so the currency strengthens against others.
And as far as pretty much anyone is concerned, in the next couple of years the ECB will keep monetary policy loose, while the Fed will be looking to raise rates steadily. That makes parity between the euro and dollar a real possibility
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