Economists worried euro could sink to dollar's worth in 2015

A Dollar and a Euro Could Soon Be Worth the Same Thing

A Dollar and a Euro Could Soon Be Worth the Same Thing

Business Insider
Analyzing the top news stories across the web
March 10 2015 4:32 PM

A Dollar and a Euro Could Soon Be Worth the Same Thing

117080271-in-this-photo-illustration-a-man-removes-euro-currency
Well, won't be needing those anymore.

Photo Illustration by Sean Gallup/Getty Images

This post originally appeared on Business Insider.

The euro crumbled below a new benchmark in early trading Tuesday, falling below $1.08 for the first time in 11 years, and just kept sliding all day. At 4:30 p.m. GMT (12:30 a.m. ET) it dropped to as low as low as $1.0709, down 1.32 percent.

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Less than a week ago, it was above $1.10. And just 12 months ago, the euro reached an 18-month high against the dollar, at nearly $1.40. It has plunged 22.5 percent since then. Here's how it looks:

euro dollar-1

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The rapid decline of the euro is raising questions about whether and when the two currencies might reach parity again, according to the FT. They have not been one for one since 2002.

Here's the FT:

"It's a risk that the market will move towards parity," says Jane Foley, senior FX strategist at Rabobank. "It's something which may happen during the course of the year."

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As Divyang Shah, global strategist at IFR Markets, puts it: "The trend remains your friend on this one and we see a strong possibility for the unit to trade at parity this year."

Oxford Economics and Goldman Sachs had forecast that the euro would drop to parity against the dollar by the end of 2016, though that could happen a lot sooner at the speed at which the euro is weakening. Many forecasters started the year with a $1.15 forecast for the euro at the end of the 2015. Unless the euro strengthens considerably from now on, that's not looking like a very good projection.

eurusd parity

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Generally, the European Central Bank's new quantitative-easing program should tend to weaken the euro, and the Federal Reserve's likely rate hikes should strengthen the US currency: When investments made in dollars can get a better return through higher interest rates, demand for dollars goes up, and so the currency strengthens against others. 

And as far as pretty much anyone is concerned, in the next couple of years the ECB will keep monetary policy loose, while the Fed will be looking to raise rates steadily. That makes parity between the euro and dollar a real possibility.