Weaker Euro Nears 1999 Level

The US dollar, as measured against six other major world currencies, has hit its highest level since December 2005, while the euro declined to US$1.1760 – closer to the level of US$1.1747 at which it first traded upon its launch in 1999.

The continuing weakness of the euro was attributed to recent data showing deflation in the eurozone last month, expectations of further economic stimulus including quantitative easing (QE) by the European Central Bank (ECB) and growing belief that the Federal Reserve will begin raising US interest rates later this year.

Added to these factors was concern that a snap election to be held in Greece later this month could result in the country exiting the single European currency – an outcome dubbed ‘Grexit’.

Belief that the ECB could resort to QE was further reinforced by data on German industrial orders, which fell 2.4% in November 2014, more than expected.

According to a report by Bloomberg, Dutch bank ING Groep – which proved to be an accurate currency forecaster in 2014 – continues to expect the euro to continue falling and drop to parity with the dollar within two years, a level last seen in 2002. The median estimate of more than 30 forecasters in a Bloomberg survey is a more modest fall to US$1.15 by the end of 2016.

Bloomberg adds that ING expects measures by the ECB to boost the eurozone’s flagging economy and avoid deflation will have more severe consequences for the currency than most other firms.

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