Goldman's Lone Call for Dollar Parity With Euro Boosted by Jobs

Dollar Surge Raises Red Flags
  • Median year-end forecast in Bloomberg survey is euro at $1.09
  • ECB seen adding to stimulus as Fed normalizes, Goldman says

Goldman Sachs Group Inc. is reiterating its call for euro-dollar parity by year-end, unfazed by the fact that it stands practically alone in seeing such steep appreciation by the greenback.

The U.S. currency will need to surge more than 7 percent from $1.0769 per euro as of 7 a.m. in London to reach parity, a move that isn’t predicted in any of more than 60 bank forecasts tracked by Bloomberg. Even after retreating 0.2 percent on Monday amid gains by higher-yielding assets, the greenback has climbed 2.3 percent since Oct. 30 and more than 12 percent this year.

The dollar surged on Friday after the strongest payrolls report this year boosted the odds that the Federal Reserve will lift its benchmark rate in December to 68 percent, up from 35 percent on Oct. 27, the day before the central bank concluded its last policy meeting. There’s plenty of scope for the U.S. currency to benefit as the Fed “normalizes” policy and the European Central Bank adds stimulus to spur inflation, Goldman analysts, led by New York-based chief currency strategist Robin Brooks, wrote in a report dated Nov. 8.

The “employment data have made December lift-off all but certain,” though markets “are hesitant to embrace dollar longs again,” they wrote. The dollar will reach $1.05 per euro by the ECB’s December meeting and “parity by year-end.”

The median estimate is for the greenback to trade at $1.09 per euro by Dec. 31, while the most bullish of forecasts compiled by Bloomberg is for an advance to $1.05. The euro sank to a 12-year low of $1.0458 in March and was last at dollar parity in December 2002. Goldman’s forecast isn’t included among those compiled by Bloomberg.

Beat Estimates

Payrolls in October rose by 271,000 and exceeded all estimates in a Bloomberg survey of economists. The jobless rate fell to a seven-year low of 5 percent, and average hourly earnings over the past 12 months climbed by the most since 2009.

While the jobs report bolstered the case for a December interest-rate increase by the Fed and propelled a broad gauge of the greenback past this year’s previous high, it’s giving dollar bulls a reason to be wary of the currency’s rally following the data. The last time the dollar was this strong, the central bank flagged it as a burden on exporters and a damper of inflation, driving the currency down by the most since 2009. 

“We do have to lower our target for the euro, perhaps $1.04 and $1.05 on the assumption that the Fed does deliver that rate hike in December and that the ECB delivers expanded quantitative easing,” Sean Callow, a foreign-exchange strategist at Westpac Banking Corp. in Sydney said on Bloomberg Television’s “First Up.” The bank currently projects the euro will buy $1.09 by Dec. 31, according to data compiled by Bloomberg.

“Parity to me still looks a long way off, I wouldn’t be calling that at this point,” he said.

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