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Increased probability for EUR/USD parity in 2017

The election of the new US President breathed new life into allegations that the markets will witness the parity between the euro and the dollar for the first time since 2002. According to traders there is 45% probability the Euro to devalue below the US dollar by the end of 2017. In one week, this forecasts rose twice, due to the Trump promises to increase spending and cut taxes in the US, which led to speculation that economic growth will accelerate and in turn will cause the Federal Reserve to raise interest rates more quickly. These attitudes sent the dollar to its highest level since February, while the EUR fell around 1.07 USD.

For Deutsche Bank, which is the fourth-largest currency trader in the world, the results of the US elections are sufficient to pull the euro outside the narrow limits within which traded in recent months and to fell below 1 USD in 2017. The expectations for parity this year virtually disappeared after the Fed delay raising interest rates, although the European Central Bank kept its unprecedented stimulus program.

According to the European experts, the divergent monetary policy is back on the agenda. However, the victory of Trump change things. It is expected the euro to devalue to 1.05 USD until the end of the year and to 0.95 USD in 2017.

The consensus on Wall Street, however, is for stronger EUR. According to US financial analysts the euro will appreciate to 1.11 USD until the end of 2017.

The strong dollar in recent days was contrary to expectations that a possible victory of Donald Trump would cause volatility in the markets and hence delay increases in interest rates by the Fed. Instead, the focus turned to the potential for economic incentives. Trump promises include costs of 0.5-1.0 trillion USD within 10 years for roads, bridges and airports.

According to traders probability the Fed to tighten monetary policy in December is 92%. On November 7, the chances were estimated to about 80%.

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