FX: What now for the euro?
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Foreign Exchange

FX: What now for the euro?

FX analysts have diverging views on the prospects for the euro over the coming months as bank research warns that the single European currency could soon be worth no more than the dollar.

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In a research note published in May, JPMorgan suggested that EUR/USD would test parity in 2022 and said it saw little prospect of respite over the remainder of the year as the reality of more sustainable US Federal Reserve tightening hits home.

HSBC analysts expressed similar sentiments earlier in the month, suggesting that the euro has already faced more downward pressure than expected and that rate hikes may not be positive for it, which begged the question of whether the European Central Bank (ECB) might change its rates policy in response to the weakness of the single currency.

Thursday’s ECB meeting provided the answer to that, with the central bank announcing it would raise rates by 0.25% in July – the first such increase since 2011 – and would end net purchases under its asset purchase programme from July 1. The central bank also expects to raise rates further later in the year.

The euro had climbed to about 1.076 to the dollar ahead of the ECB announcement, but dropped sharply in its immediate aftermath, and was at about 1.066 at 5:30pm London time. Parity against the dollar was last seen in 2002, when the euro was on the way up from a low of about 85 cents in 2001.

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