Euro to target parity by year-end, 1.05 before Dec ECB – Goldman Sachs

By FXStreet FXStreet (Delhi) – George Cole, Research Analyst at Goldman Sachs, notes that following Friday’s strong US employment report, the Dollar index is around 1.3% stronger while the notable reaction was in EUR/$, which weakened over 1.3% vs USD.

Key Quotes

“In our view, this is a consequence of the policy divergence between the Fed and the ECB. As the Fed prepares to hike rates, Euro area frontend rates have been held down by current and prospective ECB easing. Like the other markets where policy easing is substantial – for example Japan and Sweden – Euro area frontend rates were relatively unresponsive to the sharp increase in US rates, even as long end rates have moved higher in both markets.”

“This has accentuated rate differentials between the US and the Euro area – the frontend differential is now substantially wider than earlier in the year. The large reaction in EUR/$ also points to catch up in positioning, which is still building and has further to go. But as we have written here and here, we continue to expect that EUR/$ will reach 1.05 ahead of the December ECB and parity by yearend.”
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Source:: FX Street