Euro to Dollar Exchange Rate Forecast to fall Below Parity in 2017

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UK lender Barclays have informed clients to expect notable Euro weakness in 2017 as the ECB continues with its effort to reflate the Eurozone economy.

The worst two-week run for the Euro against the Dollar since March 2015 has strategists at Barclays saying the exchange rate will slip below parity in 2017.

The EUR/USD exchange rate has fallen from an opening of 1.1070 in the week starting November 7 to 1.0630 at present.

Having closed at 1.0589 in the week ending November 18 the pair has endured the worst successive two-week run for the exchange rate since March 2015.

"The EUR/USD is still limping, now below 1.06. It could absolutely collapse next week as the dollar appreciates further. The market seems convinced that the Fed will hike interest rates in December and tighten its belt further in 2017. Meanwhile the ECB and other major central banks are widely expected to maintain their current extremely loose policy stances intact well into 2017 at the very least," says Fawad Razaqzada at Forex.com.

It's no wonder that analysts are getting excited by the prospect of EUR/USD parity.

According to data gathered by Bloomberg in a survey of the financial services sector there is now a 43% that EUR/USD will sink to parity within a year. This is almost double the probability assigned a week ago.

We have this week reported the views of both Deutsche Bank and MUFG, two leading institutions that have written to clients of late warning them of further notable declines in EUR/USD.

Barclays have on Thursday November 17 written to clients expressing similar views.

In a note titled ‘FX Views for the Year Ahead’ Barclays say no currency is more exposed to both core rates steepening and the politics of rage than the EUR.

“We look for further near-term EUR weakness towards 1.05 in Q4, in the lead-up to the Italian referendum, as markets begin to price into the EUR a risk of an EMU-threatening event in the next year,” says the note.


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The EUR/USD Rate will Avoid Parity say Commerzbank


The ECB will simply be unable to drive the Euro towards parity as it runs out of firepower in 2017 says Commerzbank's Ulrich Leuchtmann.

The US Dollar has seen yet another burst of strength that propelled it to fresh 13-year peaks on a trade-weighted basis.

The EUR/USD exchange rate appears to have absorbed the brunt of the Dollar's strength with the exchange rate fading back to 11-month lows below 1.07.

The falling exchange rate has reignited expectations for the Euro to fall to parity with the Dollar - this week we have carried a number of reports on the matter.

Barclays and Deutsche Bank are two examples of institutional analysts anticipating a fall to 1:1 and even lower.

However, there remain many analysts who are not convinced the declines will extend that far.

Ulrich Leuchtmann, Commerzbank Research is one of them.

When answering the question of whether EUR-USD parity is now in sight Leuchtmann tells his clients that he “would tread carefully here”.

“It is becoming increasingly clear that the ECB cannot maintain its QE programme at current levels indefinitely – even with core inflation in the euro zone continuing to disappoint the central bankers,” says Leuchtmann.

At their December meeting, policymakers will probably extend QE once again at current levels, but in the course of next year it could become clear that the ECB will be compelled to reduce the QE volume.

“Even if the ECB tries to substitute QE with other measures, it will not be able to avoid giving the impression that it is running out of expansionary instruments. This should support the euro and prevent a collapse of EUR-USD to extreme territory,” says Leuchtmann.

Commerzbank are there therefore leaving their forecast for end-2017 (1.04) unchanged.

Analyst Fawad Razaqzada at Forex.com says to get anywhere near parity, the EUR/USD will first need to break and then hold below the prior support around the 1.0460/1.0525 area.

"As things stand, this looks like a good possibility," says Razaqzada. 

But, Razaqzada does offer a note of caution: "as always, it is worth remembering that the markets are forward-looking. As such, the outlook for the diverging monetary policy stances in the Eurozone and US may already be priced in, if not fully then may be partially. But price needs to confirm this view by creating a distinct reversal pattern. Until and unless such a technical signal is generated, the path of least resistance remains to the downside."


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The Euro To Dollar 'Below Parity' Forecast: Treasuries, US Dollar Index & Recent EUR/USD Price Action Suggest Parity


Leading foreign exchange institutions are targeting parity for the EUR to USD exchange rate in their medium to long-term forecasts.

  • The US Dollar to Euro exchange rate today (19/11/16): 0.94441.
  • The Euro to US Dollar exchange rate today: 1.05886.
  • Euro-dollar forex forecast: Calls for EUR/USD parity is on the cards.

The Euro’s fall is the worst since 1999.

The fall, which started after the US elections has only gathered steam as days pass by. The latest to drive the euro another leg down was the US Fed Chair’s testimony to the lawmakers where she said that the Fed will hike rates “relatively soon”.

“At this stage, I do think that the economy is making very good progress toward our goals, and that the judgment the [Fed policy] committee reached in November still pertains,” she told Congress’s Joint Economic Committee, reports The Wall Street Journal.

Latest Euro / Dollar Exchange Rates

On Sunday the US Dollar to Euro exchange rate (USD/EUR) converts at 0.944

At time of writing the euro to us dollar exchange rate is quoted at 1.059.

Today finds the euro to pound spot exchange rate priced at 0.858.

The EUR to CHF exchange rate converts at 1.07 today.

The live inter-bank EUR-JPY spot rate is quoted as 117.425 today.

Please note: the FX rates above, updated 20th Nov 2016, will have a commission applied by your typical high street bank. Currency brokers specialise in these type of foreign currency transactions and can save you up to 5% on international payments compared to the banks.

Divergence in monetary and fiscal policies

The FedWatch Tool forecasts a 95.4% possibility of a rate hike in December.

On the other hand, the ECB President Mario Draghi said that the Eurozone recovery is hinged on the monetary stimulus, hence the central bank will support the economy as needed.

"The ECB will continue to act, as warranted, by using all the instruments available within our mandate to secure a sustained convergence of inflation towards a level below, but close to 2%," said Draghi, reports The International Business Times.

This shows the huge divergence between the two economies. The difference between the yields of the US Treasurys and the German bund has risen above 2% for the first time since the fall of the Berlin wall.

Along with this, the new President-elect is likely to boost fiscal spending in the US, which will increase inflation at a faster pace, which in turn will force the Fed to hike rates at a much quicker pace than anticipated.


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