The euro is expected to equal the dollar at a time when the gap between interest rates and economic growth in the United States (USA) and Europe is widening. Experts from the American financial services company Wells Fargo say they expect the equalization to occur within a month.
The euro, which has been down for the past three days, traded at $1.05 on Wednesday. The euro was last equated to the dollar 20 years ago.
The euro, which fell to the lowest level in the last five years in mid-May, lost 8 percent against the dollar this year after the US Federal Reserve (Fed) tightened its monetary policy sharply and raised interest rates well above the level in Europe.
Wells Fargo’s forecast came on speculation that the Fed could raise the benchmark rate by as much as 75 basis points on Wednesday to help the dollar rise to its highest level in two years.
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According to Erik Nelson, a strategist at the European Central Bank (ECB), the Fed’s move is putting pressure on the euro as the ECB takes a less pro-increasing approach. One of the underlying reasons is that the economic growth in the USA is stronger than in the euro area.
Speaking to Bloomberg, Nelson said, “The return to the strength of the US Dollar has been faster than we expected,” and he said that they were of the opinion that the pair will happen, but there is a question mark about when it will happen.
While the ECB did not change interest rates in line with market expectations despite high inflation, it signaled in July that it would raise interest rates for the first time in 11 years.
Pointing out that the ECB Governing Council foresees an increase in interest rates again in September, it emphasized that the amount of increase will depend on the current medium-term inflation outlook.
