Euro set for dollar parity ‘within weeks’

The euro pulled out of its recent nosedive against the dollar on Thursday though analysts still expect the world’s two biggest currencies to reach parity in a matter of weeks.

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The euro has lost five per cent of its value against the dollar in the past week, reaching a 12-year low as the European Central Bank (ECB) launched its huge quantitative easing programme.Markets have also been devaluing the euro amid continuing concerns that the eurozone crisis over Greece is far from over, and on the expectation that US interest rates could rise this summer.The euro has also seen large falls against the pound, trading at 1.40, a rate not seen since 2077 and about 15 per cent lower than it was a year ago.Jonathan Loynes, chief European economist at Capital Economics, said, “I have pencilled in a further fall in the euro to parity against the dollar in the next few months, and it could certainly go lower.“However, we then anticipate a partial recovery in the single currency to about $1.10 by the end of 2016 as the Greek crisis is resolved one way or another and the eurozone’s relative growth performance improves a bit.”Mr Loynes said that Capital Economics estimated the probability of Greece leaving the euro at more than 50 per cent.“The precise timing is uncertain, but Greece’s current economic and financial position is unsustainable and, after the initial turmoil, the country would be much better off outside.“This suggests that the risks to the euro versus the dollar are still on the downside, as a resurgence of the crisis would add to the pressure from the divergence in monetary policy.”However, Ewald Nowotny, head of Austria’s central bank and a member of the ECB’s governing council, shrugged off the significance of the euro’s fall.“The ECB, as a central bank, does not have the exchange rate as a policy. It is a side effect of other things,” he said.“Exchange rates are not a major dominant factor for the global economy. I think it would be wrong right now to assume that what’s going on is a currency war.”The ECB has launched its 1 trillion euro bond-buying programme – intended to kick-start stagnant eurozone economies – at a time the US Federal Reserve is eyeing its first interest rate rise in almost a decade.I think we have to move (to raise rates) now, or soon, in order to be in the right position as the economy continues to evolve, James Bullard, a Fed policymaker, told the Financial Times.For more Re:locate news and features about finance and foreign exchange click here