Euro Expected to Fall Below Dollar by 2017
Deutsche Bank has issued a report stating that it expects to see the euro fall below parity with the dollar for the first time in over a decade. Deutsche Bank is Germany’s biggest bank and is the second biggest currency trader in the world. They expect that the value of the euro will slip below that of the dollar by 2017.
This is the most aggressive call yet from the bank, although it does reflect what other banks have already noted. The majority of banks have already taken an incredibly bearish stance towards the euro. The report argues that poor investment returns and large trade surpluses will drive a flood of capital out of the eurozone, potentially causing a 25% depreciation of the euro.
The value of the currency has already slipped by ten percent since May, when it peaked at a two-and-a-half-year high of $1.40. The current consensus view is that the euro will continue to lose value for the next year, and that it will return to the 2002 era, when it was worth less than one dollar.
Other Banks Offer Similar Predictions
Barclays takes a similar view, expecting it to hit $1.10 within a year, and Goldman Sachs predicts that it will attain parity with the dollar by 2017, with currency exchange rates slipping in favor of the dollar over the next few years.
Surpluses in current accounts are usually seen as positive for currencies, and some commentators have noted that Germany’s overspill on trade is helping to prop up the euro at the moment. However, that surplus could combine with low domestic growth to shrink any returns on European investments, dragging the euro down.
A Huge Surplus
George Saravelos of Deutsche bank has said that he expects Europe’s excess savings and the ECB easing to result in large capital outflows — potentially the largest outflows in the history of the financial markets. Europe’s current account surplus is sitting at around 400 billion dollars a year, which is more than the surplus held by China in the early 2000s. If this is sustained, then it could become the biggest surplus in living memory.
This “euro-glut” could drive financial trends for the rest of the decade, turning Europe into the largest capital exporter of the 21st century and sparking the purchase of some large foreign assets as Europe becomes the largest capital exporter of the 21st century.
The foreign currency market is a volatile one, but the current trends are clear. The eurozone has enjoyed a period of confidence and stability, but as the dollar strengthens and the effects of the euro-glut take hold, we are likely to see a reversal in the value of the currency. The question that remains is about when investors will choose to buy back into the currency, and how long the downward trend will persist for. In addition, many investors will be watching the traditional safe havens to see what impact a eurozone exodus has on them.