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Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Reach Parity As Currency Pair Falls to 12-Year Low

The Euro to US Dollar (EUR/USD) exchange rate weakened further on Thursday and slumped to its weakest level since 2003 as the monetary policy of the US Federal Reserve diverges from that of the European Central Bank (ECB).

The Euro to US Dollar (EUR/USD) exchange rate dived to a session low of 1.0493

Since the US Dollar began to rally last year, the single currency has lost around a quarter of its value and there is little sign that the declines will end anytime soon. If the Euro continues its rate of declines, the currency could reach parity against the ‘Greenback’.

‘It’s the Euro versus everything. The way these moves look, it is not just speculators piling into Euro shorts; it is actually net flow of capital out of the Euro. There’s a pick-up in Euro system excess liquidity just as the Fed is playing with its own operations to try to withdraw liquidity and as the rhetoric is tilted towards rate hikes,’ said the European head of FX strategy at BMO Capital Markets.

The Euro’s weakness is also a result of the launch of the ECB’s €1.1 trillion quantitative easing programme, which was launched at the start of the week. The central bank began creating new money to purchase sovereign bonds in an attempt to tackle the threats posed by weak economic growth and low inflation.

European Disunity

Also continuing to weaken the Euro are concerns over Greece. Economists had hoped that the threat of the nation defaulting and the Eurozone had ended, but as the showdown between Athens and Brussels rages on those fears have returned.

The ECB is expected to stick to its guns as it said that it has seen no progress of reforms being implemented by the Greek government. With cash rapidly running out in the nation investors are raising their bets that it could default and leave the single currency.

A leftist minister launched a scathing attack on Germany’s Finance Minister following speculation that Berlin had put pressure on Athens to replace Finance Minister Yanis Varoufakis.

‘Who do they think they are to ask for the replacement of Varoufakis? Greece is not a banana republic. It is not a protectorate. Berlin cannot dictate to us who will be our ministers,’ said Dimitris Stratoulis.

In another sign that no love is lost between Greece and Germany, Justice Minister Nikos Paraskevopoulos has said he is ready to sign an older court ruling that will enable the foreclosure of German assets in Greece in order to compensate the relatives of victims of Nazi crimes during the Second World War.

The Euro to US Dollar exchange rate is trading in the region of 1.0570