30 October, AtoZForex.com, Lagos – As the Dollar resumes its rally against the Euro after stalling at a 12 year high back in March, Goldman Sachs and State Street Corp. are two of the banks who believe the pair may finally be bound for parity.
Since January, Goldman Sachs Group Inc. had made bullish prognosis, calling for the dollar rally, and an eventual strengthening to level with the value of the Euro. Based on the recent conditions in both currencies, the bank has again reiterated for parity to occur as soon as December as the Federal Reserve and European Central Bank move toward divergent monetary-policy actions.
With the Fed hinting on possible rate hikes in December, and the ECB hinting on additional stimulus to come in December as well, the policy divergence firms, bringing the euro-dollar parity back into focus.
Robin Brooks, Goldman Sachs’s New York-based chief currency strategist, wrote in a report: "After the painful period since March, it will take time for markets to trust this message once again," "But we think they will, which should take euro-dollar down to $1.05 ahead of Dec. 3, and we picture ending the year at parity."
US not immune to contagion
Considering the perceived strength in the US economy, and the diverging conditions between the country and the rest of the world, many analysts called for a multi-year dollar appreciation cycle. Only for the reality of the situation to later become clear. The US is not immune to contagious effects of the slowdown around it.
Goldman Sachs is one of the few remaining banks insisting on a dollar rally by year end. Due to the initial lack of follow-through in the dollar’s rally earlier in the year, no other bank is presently calling for parity, as opposed to 14 at the start of the quarter, according to a Bloomberg data. Morgan Stanley, Bank of America Corp. and Citigroup Inc. are among banks that have lowered their dollar forecasts against the euro during the past two months.
State Street Corp., also supports the idea of a Euro Dollar parity, based on the policy divergence of the Fed and ECB, as Steven Meier, the Boston-based head of cash, currency and fixed income at the money-management unit of State Street Corp: “If we have those two events happening at the same, we’ll certainly move closer to parity. The divergence of monetary policies will certainly drive the dollar higher against the euro.”
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