By Mike Brown -
Analysts at Goldman Sachs (N:GS) believe the euro could be heading for parity with the dollar. The euro dropped below $1.06 on Thursday, following an exclusive report by Reuters that claimed the European Central Bank (ECB) had been considering a variety of options before the next ECB meeting.
The ECB is expected to decide at the meeting whether to expand its current program of quantitative easing. The bank could also potentially cut interest rates further. "They expect EUR/US$ to go to 0.95 over the next 12-months but this level could be reached sooner," said an outlook from Goldman. "Until the ECB meeting they expect 1.05 and parity by year-end."
One of the options the ECB has been considering, Reuters claimed, was a two-tier bank charge on those who seek to keep their money with the ECB. This, the FT reports, would help alleviate major charges for commercial banks.
A source speaking to Reuters voiced their concerns about the eurozone's near-stagnation, and the need for action at the ECB meeting. "We have deflation, so you have to do something," said the source. But what the outcome will be after a few years is uncertain, the source explained.
On the other side of the pond, the Federal Reserve is expected to raise interest rates. The ECB released a stability review on Wednesday that pointed to both the lack of eurozone growth and the impending rate hike were "of particular concern" to the eurozone's stability.
The question is whether surprises have already been priced into the euro ahead of the ECB meeting. "The market is short of euros and is braced for a negative surprise from the ECB meeting," said Kit Juckes at Soc Gen to the Financial Times. "If you've priced-in a surprise, how can you be surprised?"