EUR/USD: ABN-AMRO predicts a drop below parity (0.95) by 2Q 2017

In a note issued today, ABN Amro joins several other banks in their forecasts of a fall of the EUR/USD pair below parity:

"Since the US presidential elections, the dollar has risen against most currencies, both G10 and emerging.

It should be noted that Trump's program has similarities with Reagan's program in the 1980s. However, the dollar had increased by 43% during Reagan's first term. The only difference is that the anticipated growth margin under Reagan was greater than it is now.

However, we increased our US growth expectations upwards based on Trump's economic agenda. We now expect a substantial acceleration of growth and inflation, which should lead the Fed to adopt a more hawkish position than the market expects.

We anticipate 6 rate hikes over the next two years, compared to only 4 currently taken into account by the market.

In this context, we expect a gradual fall of the EUR/USD below parity, with the pair falling to 1.05 at the end of Q1 2017 and then to 0.95 by the end of Q2."