The surprising victory of Donald Trump renewed the bet that divergent economic trends will push the unique European currency to parity with the US dollar for the first time since 2002, Bloomberg declared.
Traders see a 45% probability that the euro could fall to $1 by the end of next year, almost twice the chances estimated a week ago, Bloomberg data show.
The U.S. president’s commitment to increase spending and cut taxes fuels the speculation that economic growth will accelerate, prompting the US central bank to raise interest rates more quickly. These speculations have pushed the dollar index to its highest level since February earlier this week, while the unique European currency depreciated to about $ 1.07, its lowest level this year.
For Deutsche Bank, the fourth-largest currency trader in the world, the outcome of the US elections is enough to pull the euro in the range from where it was months in a row and a push it below $ 1 in 2017.
Estimations of parity decreased strongly this year after the Fed reduced its estimates on the numbers of expected interest rate hikes, even while the European Central Bank maintained its record stimuli.
“The divergence is called into question. Trump’s victory has changed things, “writes George Saravelos, a strategist at Deutsche Bank in a recent report.
Saravelos expects the euro to fall to $ 1.05 by the end of this year and 95 cents by the end of next year, the lowest level since June 2012. Wall Street still expects a stronger euro. The euro will climb to 1.11 by the end of 2017, according to the average of estimates compiled by Bloomberg.
Dollar appreciation in the last days before the presidential election contradicts expectations, according to which Trump’s victory would be followed by a sharp decline in the US currency, as investors were expecting strong volatility in the markets, which would have led Fed to postpone its interests increases.
‘We forsee achieving parity in the first quarter of next year’, said Enrique Diaz-Alvarez, from Ebury broker in New York.