‘Dollar to reach parity with euro by year-end’

Goldman Sachs Group sees its longstanding call for the dollar to reach parity with the euro coming true as soon as December, as the Federal Reserve and the ECB move toward divergent monetary-policy actions.

The US central bank said on Wednesday night that it will consider raising interest rates on December 16, a week after the ECB hinted that there may be additional stimulus as soon as its December 3 policy meeting.

That’s bringing euro-dollar parity back into focus, after the dollar’s ascent stalled at a 12-year high in March.

“After the painful period since March, it will take time for markets to trust this message once again,” Robin Brooks, Goldman Sachs’s New York-based chief currency strategist, wrote in a report.

“But we think they will, which should take euro-dollar down to $1.05 ahead of December 3, and we picture ending the year at parity.”

The dollar slipped 0.4% to $1.0968 yesterday, in New York trade, after rallying to 1.2% on Wednesday. It rallied to $1.0458 on March 16, after beginning the year at $1.2109.

Goldman Sachs’s official three-month dollar projection is $1.02 per euro, the most bullish when compared with year-end currency forecasts.

But in a sign that the bullish consensus is fading, no other bank is now calling for the dollar to rally to parity with the euro by year-end, compared with 14 at the start of the quarter.

While Goldman Sachs stuck with bullish calls it first made in January, Morgan Stanley, Bank of America and Citigroup are among banks that have lowered their dollar forecasts, against the euro, during the past two months.

Fed policymakers said on Wednesday that the US economy was still expanding at a “moderate” pace, giving themselves the option to tighten policy at their next meeting in December.

Futures prices showed an increased probability of a December rate rise.