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Euro to fall below parity as Fed tightens and ECB eases – Deutsche Bank

FXStreet (Delhi) – Research Team at Deutsche Bank, suggests that the ECB is on track to ease further in December and the Fed is on track to hike rates a week later.

Key Quotes

“‘On track’ doesn’t make it a done deal, but the latest FOMC minutes were deliberately sending the markets two signals - that the Fed wants to get rates off the zero bound and that the path thereafter will be very slow. EUR/USD continues to track Treasury/Bund spreads rather than short-dated rate differentials.”

“After last Friday’s attacks in Paris, the euro fell faster than bond markets would justify before bouncing yesterday. Our assumption is that the euro will see a bounce, possibly after the Fed finally acts, as bond markets react calmly, but we will likely see the low in EUR/USD closer to the peak level of that Treasury/Bund spread, which is more likely to come in 2017 than 2016. That should take EUR/USD below parity in due course, though to get much below (close to 0.90, say) is going to take either another regime shift in the way the currency par correlates with rate differentials, or much higher Treasury yields than I can imagine.”

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