The euro dropped sharply ahead of Thursday’s European Central Bank (ECB) policy meeting, leading some analysts to anticipate a rapid decline to parity against the U.S. dollar.
“The euro is sliding simply because it has not yet factored in the impact of the quantitative easing that starts next week,” Greg Gibbs, head of Asia Pacific markets strategy at RBS said in a note on Thursday.
“The monetary settings are simply not fully priced in yet,” he said, noting “the move towards parity may indeed be very fast.”
The euro ran into heavy selling from early European trading on Wednesday, dropping from around 1.1170 to an 11-year low of 1.1061 in early Asian trading on Thursday.
German bond yields also fell. As the German-U.S. yield differential continues to widen, Barclays head of FX Strategy, Asia Pacific Mitul Kotecha told CNBC, the euro will fall further: “We’re still looking for parity by year-end.”
So far this year, the 10-year benchmark German bund has dropped 23.5 percent to 0.381 percent, while the yield on U.S. Treasury’s has risen 4.0 percent to 2.119 percent.
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