Euro plunges after Fed hike: Could reach parity with US dollar

Euro’s value further fell after the Federal Reserve announced the results of the meeting whether to raise interest rates in the United States. The Fed stated that they will be increasing interest rates by 0.5% to 0.75% and will be more aggressive towards 2017, as the Fed prepares for a new administration by January 2017.

The euro plunged sharply against the greenback during Thursday trading at $1.0500, which was euro’s lowest since January 2003. Euro closed down 0.6% on Thursday at $1.0411. In the last three months, euro already fell around 7% against the dollar, and 25% since May 2014, 35% decline from all-time peaks hit before the financial crisis last 2008.

Prior to the Fed rate hike, euro rallied against the dollar after the vote against the Italian referendum; however, the currency fell once more after the European Central Bank meeting and stated that they will retain their interest rate at 0.25%. This was a record low ever since the rates were previously reduced last August after Britain voted to leave the European Union.

With euro’s continuous plunges against the dollar, several analysts believe that the currency might reach parity with the greenback; resulting to almost a 4% decrease from the euro’s trading rate from Thursday.

“A lot of people figure the door has been opened here for parity on the euro. We’ve broken through so many supports lately that the next level of support is parity, 1.00,” stated director of corporate FX sales at Societe Generale, Carl Forcheski.

Barclays already expects the possibility that euro could reach parity with the US dollar around the third quarter of 2017, and could even fall below $1. Meanwhile, JP Morgan believes that euro could be equal with the greenback to as early as the first quarter of 2017.

The greenback has already reached its 14-year high after consistent rallies against several other currencies, getting its strength from the results of the presidential election from November 8. Based on dollar’s current performance in the market, the greenback is expected to climb 5% to 10% more by 2017. Trump will likely contribute to the dollar’s price surge as his administration is possibly to implement business-friendly policies.

Meanwhile, gold also plunged even further in prices by 2.8%, or $32.30 to $1,131.40 per ounce, since dollar prices climbed.

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