Parity Push On Hold

by | Mar 20, 2015

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Neil Davies, Head of Trading at PlutusFX, takes another look at the EUR/USD currency pair:

The light relief we saw last week for the greenbacks strive towards parity with the Euro has seen further abatement, with the pair currently standing at EUR/USD 1.073 having yesterday briefly surged through the 1.1 mark.

The move came as the US Federal Reserve modified its stance on interest rates, which were kept at the record low of 0%. Much talk prior to the announcement was of the potential removal of the word ‘Patience’ from the statement, which the Fed did deliver, however, it said that further improvement in the labour market would be required before rates were raised, potentially pushing the rate rise further down the road. Shares rose on the news, pushing the Dow Jones above 18000 again, but shy of a new all-time high.

Money has flowed into the US over the past couple of years, based on an economy that is growing, as opposed to many of its Western counterparts and the expectation that it will be the first major economy to move rates upward. The very notion of this may though now be the undoing of such a move. With a strong dollar putting a lid on exports and investments, in Germany in particular, looking attractive at a close to parity level, the reversal of fund flow may be an indicator that rates are going nowhere soon. You only need to look at the relentless rise of the DAX to see this.

Any further disappointing economic data, such as we have seen with retail sales and consumer sentiment figures, may mean parity is never reached.

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