Euro sinks closer to parity with US dollar, analysts say

Torn Dollar

City analysts are betting that the euro could soon sink to the same value as the US dollar on foreign exchanges, after the European Central Bank’s quantitative easing programme kicked off.

The single currency has fallen sharply since last summer when Mario Draghi, the ECB president, laid the groundwork for QE; but it has fallen further since the €60bn-a-month (£42bn) bond-buying programme began on Monday.

Meanwhile, the dollar’s value has been boosted by strong hints from the Federal Reserve that it could start to raise interest rates later this year.

The euro slipped to $1.0599 on Wednesday, below $1.06 for the first time since April 2003. In total, the single currency has lost 35% of its value since last May.

In a fillip for British holidamakers heading to eurozone countries for an Easter break, the euro also continued to fall against the pound on Wednesday, hitting a seven-year low of 70.48p.

Michael Hewson, chief market analyst at CMC Markets, said: “For now the euro looks to be headed towards parity [with the dollar].The next target sits at 1.0500 (the March 2003 lows) and it remains a very short hop from there to parity.”

Draghi said cheaper borrowing costs for some eurozone countries suggested that QE – which tends to drive up the value of bonds, and thus depress their yields, which move in the opposite direction – was already having an effect.

“We saw a further fall in the sovereign yields of Portugal and other formerly distressed countries in spite of the renewed Greek crisis. This suggests that the asset purchase programme may be shielding euro area countries from contagion,” he said.

However, some analysts have questioned whether the ECB will be able to find sufficient bonds to buy to hit its monthly target.

Powered by article was written by Heather Stewart, for on Wednesday 11th March 2015 10.50 Europe/ © Guardian News and Media Limited 2010


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