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21st Sep 2019

Euro heading for dollar parity

  • The euro is set to hit parity with the US dollar as its value continues to plunge. (Photo: Images_of_Money)

The euro is set to hit parity with the US dollar in the coming weeks as a combination of quantitative easing and fears over a Greek exit from the eurozone continues to fuel a plunge in its value.

The euro has lost 10 percent against the dollar and the pound sterling since January. This has largely been attributed to the European Central Bank’s recently launched €1.1 trillion quantitative easing (QE) programme, which will pump an extra €60 billion into the eurozone economy every month until September 2016, alongside renewed fears that Greece could be forced out of the single currency bloc.

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At the close of trading on Tuesday (10 March), one euro was worth $1.07 and £0.71 respectively, its lowest rate against the dollar since September 2003 and lowest level against the pound since 2007.

Market analysts expect the euro to slide further against the greenback because the ECB’s bond-buying programme is expected to be accompanied by the first interest rate rise in the US since the 2008-9 financial crisis.

The falling euro is also putting increasing pressure on Denmark to follow the lead set by Switzerland last month and abandon rules capping its kroner currency to the euro, as the kroner becomes too strong to maintain the link.

The euro lost nearly 20 percent of its value in a day against the Swiss franc after the Swiss national bank abandoned a three year cap on the franc's value against the single currency in mid-January.

The falling currency makes the eurozone’s exports more attractive - which should aid the bloc’s economic recovery - but makes it more expensive for people travelling outside the Eurozone.

Last week the ECB revised up its forecast for the bloc’s economic performance in 2015 to a 1.5 percent growth rate.

Greece

Meanwhile, Greece’s international creditors are to start “technical level” talks with government officials in Brussels on Wednesday after Eurogroup chairman Jeroen Dijsselbloem urged Greece to “stop wasting time” in implementing the country’s controversial bailout programme.

However, there has been no let-up in tough-talking by either side.

In a speech to the Greek parliament on Tuesday, prime minister Alexis Tsipras appeared to link the ongoing bailout talks to demands for Germany to pay reparations from its occupation of Greece during the Second World War.

He said the Greek government will strive to honour its commitments to the full”, but would also “strive to ensure all unfulfilled obligations toward Greece and the Greek people are fulfilled”.

“You cannot pick and choose on ethical issues,” he added.

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