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13 Apr 2015
EUR/USD parity by year-end – Capital Economics
FXStreet (Barcelona) - The USD strength seen after the release of the FOMC Minutes is set to continue and lead to Dollar and Euro parity by the year-end, views Kevin Ferriter of Capital Economics.
Key Quotes
“…interest rate expectations against the euro-zone are a key determinant of the exchange rate, and explain a lot of the dollar’s rise since last summer.”
“Still, US monetary policy cannot explain the most recent move in the dollar/euro rate completely, as the euro also weakened against all other G10 currencies. Weak economic data probably also played a large role, particularly Germany’s industrial production numbers”
“Looking ahead, we think that growth in the euro-zone may still pick up a bit as the positive effects of the ECB’s quantitative easing programme, particularly the weaker exchange rate, feed through. In fact, we have revised up our forecast for GDP growth this year in the euro-zone from 1.0% to 1.5%.”
“But we expect growth to remain stronger in the US. And regardless of the timing of the initial hike, US interest rates are likely to increase at a faster pace over the next couple of years than market participants currently anticipate. On this basis, we expect the dollar will end the year at parity with the euro.”
Key Quotes
“…interest rate expectations against the euro-zone are a key determinant of the exchange rate, and explain a lot of the dollar’s rise since last summer.”
“Still, US monetary policy cannot explain the most recent move in the dollar/euro rate completely, as the euro also weakened against all other G10 currencies. Weak economic data probably also played a large role, particularly Germany’s industrial production numbers”
“Looking ahead, we think that growth in the euro-zone may still pick up a bit as the positive effects of the ECB’s quantitative easing programme, particularly the weaker exchange rate, feed through. In fact, we have revised up our forecast for GDP growth this year in the euro-zone from 1.0% to 1.5%.”
“But we expect growth to remain stronger in the US. And regardless of the timing of the initial hike, US interest rates are likely to increase at a faster pace over the next couple of years than market participants currently anticipate. On this basis, we expect the dollar will end the year at parity with the euro.”