Dollar to hit parity with euro in 2017

Dollar to hit parity with euro in 2017

The dollar is likely to hit parity with the euro during 2017 driven by diverging paths for interest rates, according to Goldman Sachs' chief economist.

The Federal Reserve is likely to hike interest rates three times in 2017, pushing it even further from the rate positioning stance of Europe during the course of the year, Jan Hatzius told CNBC at the Goldman Sachs Strategy Conference in London on Monday.

Goldman Sachs' base case estimate that the Fed will follow through with rate rises in June, September and December this year is more hawkish than current market consensus which is pricing in two hikes for 2017.

"The primary driver here is not valuation but really interest rate differentials. If we are right that the Fed moves the funds rate up more than what the markets currently pricing … that's generally a relatively good indicator to watch," CNBC cited him as saying.

An associate professor of Stock Markets and Financial Engineering of RANEPA, Vasiliy Yakimkin, speaking with a correspondent of Vestnik Kavkaza, noted that the dollar really has a chance to hit parity with the euro. "It depends on how intensive the Fed will raise rates. If rates are raised threefold, there will be minimum parity between the two currencies, and then quotes around $0,95-0,98 per 1 euro are possible. If the rate increase is doubled, the situation will reach parity, but that's all," he said.

A full implementation of the electoral program of the US President-elect Donald Trump is also able to help the dollar rate to increase above the euro. But if Trump vigorously implements his threats against China, the risks associated with the Chinese economy will hit the United States. "In general, the forecasts agree that the euro this year will range from $1 to $0,95-0,98," the economist stressed.

For the global financial system this event will mean a rise in popularity of loans in euros. "Cheap currency loans are very favorable, and therefore, we can expect a credit boom among banks in Eastern Europe," Vasiliy Yakimkin expects.

As for Russia, then parity between the value of the euro and dollar will not have a strong impact. "Especially since the Russian economy has learned to do without Western currencies in the time of sanctions," the expert believes.

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