Investment banks abandon 2017 euro-dollar parity call

Last week, a couple of investment banks have scrapped their 2017 euro-dollar parity call. Citigroup called off its euro-dollar parity call saying that it no longer expects a big rally in the US dollar, which could push it to parity with the euro. The bank now expects the euro to decline to 1.04 against the dollar, revised from its previous forecast of 98 cents on the dollar. The euro is currently trading at 1.086 against the dollar and the bank suggests that it could jump to as high as 1.10 against the dollar over the next three months in the Front National candidate Marine Le pen gets beaten in the upcoming French election.

After Citi, it was Barclays. In a report on last Thursday scrapped the euro-dollar parity call noting that investors are breathing a sigh of relief after the Dutch election, where the euro-skeptic PVV party led by Geert Wilders failed to secure the top position. The bank is now forecasting the euro to reach 1.09 against the dollar in the second quarter of 2017 and drop to as low as 1.03 against the dollar in the fourth quarter and rebound to 1.05 against the dollar in early 2018. The bank now only sees modest US dollar appreciation likely to peak in the fourth quarter. The bank said in its report, “The cyclical advantage of the dollar might erode as more robust global growth and inflation materialize, while sideways moves appear more likely without a significant policy boost that shocks rates and equity risk premia higher. The path for the dollar is subject to uncertainty in fiscal and trade policies, which could lead to vastly different outcomes.”

The strength of the US dollar has recently come under strain as the financial markets pose doubts on the ability of the White House to pass its promises, the hope of which boosted the performance of the dollar since the US election.

Our euro-dollar parity call still remains active, which were given out at then exchange rate of 1.11 against the dollar. We have not scrapped it yet but closely monitoring the fundamental changes.