Surprise from the dollar to the euro? Analysts already see it as a “possible scenario”

The different paths that the United States Federal Reserve and the European Central Bank are taking can lead to a historical situation: that the euro is no longer worth more than the dollar. A scenario that analysts do not rule out given the policies that Jerome Powell and Lagarde are undertaking regarding their debt purchase plans. While on the other side of the Atlantic they take their foot off the gas and have already announced a gradual reduction in stimulus, in Europe there seems to be more room to support the financing of recovery plans.

The market is already discounting an upcoming rate hike in the US and, consequently, the euro has depreciated more than 5% against the dollar in just five months and has been 11% from achieving total equality between the two currencies. A downward trend that everyone agrees will continue at least in the medium term. The reason is that, while the Fed has already announced that it will reduce its purchases by 15,000 million a month, the ECB does not show signs of doing the same. In fact, Bloomberg analysts believe that the ECB’s tapering will not start until 2023.

Analysts find it difficult to actually know this historical surprise. The euro has not been below the dollar in its entire history and they believe that its strength and an eventual reversal of the European institutions can prevent it from happening, but they already speak of this advance as a very real possibility and hardly avoidable if there are no changes in 2022.

“The sorpasso is a really possible medium-term scenario“, defends Víctor Alvargonzález founding partner and director of strategy of Nextep Finance.” The ECB is not worried that the price of the euro will fall and its priority seems to keep financing costs low (especially for southern countries like Spain “. Yes The agency maintains that idea as a priority “anything is possible.” However, Alvargonzalez clarifies that he sees it as complicated by the strength of the euro and an eventual reaction when prices begin to adjust.

“What is really surprising is that the euro is not depreciating much faster, we think it will break the $ 1.15 limit and then the confidence that the ECB will take measures will decrease and we will see more rapid declines, “they explain from Nextep. In any case they believe that it is difficult to imagine changes in Lagarde’s monetary policy in the short term because” Powell was preparing the market for tapering more than six months and the ECB is not doing anything in that regard, so a change of course can harm stability and markets. “

From Schroders they agree that they do not expect a tightening of European stimuli until 2023 and, consequently, they believe that “there is a greater weakness for the euro. against the dollar the next few months“They also emphasize that the market has seen a more accommodative stance in the institution this last quarter, which has contributed to the weakness of the currency of the old continent.

Thomas Hempell, Head of Market and Macro Analysis at Generali Investments, says they expect a period of dollar strength especially driven by “a more aggressive turn from the Fed on inflation.” Therefore, experts believe that a scenario is reasonable in which in the next twelve months the 1.1 dollars for each euro will be achieved, although they emphasize that it should not be ruled out that the ECB advances its plans to reduce purchases to 2022 “so it is” unlikely. ” In December 2022, the euro will trade at $ 1.13, and they certainly believe that it will be far from the $ 1.2 that Lagarde set as a goal this summer.