Euro to hit parity with dollar but not for long as investors assess financial impact of Paris attacks

Stephen Diggle, who co-founded a hedge fund that made $2.7 billion (€2.53bn) in 2007 and 2008, said the euro’s slide is almost over and his German property holdings will benefit. UBS, the world’s largest private bank, agrees further losses are set to be limited.
Euro to hit parity with dollar but not for long as investors assess financial impact of Paris attacks

The euro tumbled to a seven-month low against the dollar this week as investors assessed the impact of Friday’s terror attacks in Paris on the region’s stuttering economy.

The single currency has weakened more than 6% since European Central Bank President Mario Draghi signalled last month that policy makers are open to boosting stimulus, even as the Federal Reserve moves toward raising rates.

“Of course the euro can go lower, but I doubt it would go a lot lower, especially as we don’t see the US economy racing ahead,” Mr Diggle, chief executive officer of Singapore-based family office Vulpes Investment Management, said in an interview.

“We are extremely sanguine about Germany and the euro and our housing investments.”

Options traders have been cutting positions that would benefit from a weaker euro.

The premium on three-month contracts giving the right to sell the shared currency over those to buy narrowed to 1.2 percentage points yesterday, from as wide as 1.77 points in late October.

The euro may weaken to parity if the Fed raises rates in December and the ECB expands stimulus, though this will probably be short-lived, said Kelvin Tay, regional chief investment officer at UBS’s wealth management business in Singapore.

The single currency may appreciate to as high as $1.10 in six to 12 months as investors are likely to be drawn to European stocks because earnings growth is set to outpace that in the US and Asia-outside-Japan, he said.

“Parity could perhaps be reached but for a very, very short time; not for a prolonged period,” Mr Tay said.

“The bounce back up is likely to be quite fast as well, largely because it won’t be a sharp increase in US rates.”

The last time it traded at parity with the dollar was in December 2002.

Mr Diggle plans to pour more money into housing investments in Germany, where his fund has already bought more than 1,200 apartments.

A measure of German investor confidence rebounded in November, the ZEW Center for European Economic Research said this week.

Mr Diggle, a graduate of Oxford University who worked at Lehman Brothers before co-founding a hedge fund, said bonds and equities are relatively expensive “against a pretty worrying backdrop of a global economy stuck in second gear.”

“We continue to focus on things that will do well in such an uninspiring environment, with German real estate still our number one thematic idea,” he said.

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