Parity with dollar looms as euro falls to $1.07

The euro has fallen to a near 12-year low against the dollar, as the repercussions of the European Central Bank's bond-buying spree and growing expectations of a US interest rate rise spread through global financial markets.

The euro, which has dropped 13.1 per cent against the dollar since the start of 2015, had dipped below $1.07 by mid-afternoon trading in London yesterday, raising the prospect of euro parity with the greenback.

It also fell against sterling to below £0.71, its lowest level since December 2007.

The dollar’s rise and euro’s decline reflect the growing transatlantic divergence in monetary policy.

The ECB launched its €1.1 trillion quantitative easing programme this week while a better than expected US jobs report last week fuelled speculation that the US Federal Reserve would raise interest rates towards the middle of this year.

But analysts have been taken aback by the pace of the euro's depreciation. In December, just one of 32 respondents to a Financial Times poll of euro zone economists said the euro would be worth the same as a dollar during 2015.

However, in the past few days, some have been revising their forecasts. Deutsche Bank, which has warned about the pace of capital outflows from Europe, predicted yesterday that the euro would not only hit parity by the end of this year but continue falling, to $0.90 by 2016 and $0.85 by 2017.

Elsa Lignos, senior currency strategist at RBC Capital Markets, forecast that the euro would reach $1.05, but added: "The closer we get to that level the louder the calls will grow for parity.

“The euro-dollar pair has been carried lower mainly by dollar strength than euro weakness. It’s not a stretch to see it trading as far as parity.”

The fall towards parity will be welcomed in Frankfurt. Senior ECB officials hope a weaker euro will provide a much-needed boost to the region’s exporters.

The dollar index, which measures it against a group of other currencies, rose 0.9 per cent to 98.47.

It has risen nearly 9 per cent since the start of the year. – Copyright The Financial Times Limited 2015