A research note via ANZ on the euro against the US dollar.
On the USD:
- Unlimited QE means the US has a ready buyer for the huge pipeline of Treasury debt issuance, reducing the need for a higher risk premium or weaker USD. Low inflation is also benefitting the dollar.
On EUR:
- Unless the euro area addresses the challenges facing its fiscally weaker members, or it starts to repatriate its stock of net foreign assets, we see the path of euro depreciation extending.
- We have therefore downgraded our EUR/USD forecasts and anticipate a test of parity in coming months. However, if Brussels cannot alleviate the fiscal straightjacket facing the EA's more fiscally challenged economies, the risks of a deeper decline in the euro will open up.
