On September 10th, Jinshi data, David Adams, head of G-10 forex strategy at Morgan Stanley, said that as the European Central Bank increases its easing policy to deal with the stumbling economy, the euro is expected to fall to parity with the US dollar in the next few months. The euro is expected to fall to $1.02 by the end of the year, about 7% lower than the current level. This basic scenario depends on the European Central Bank continuing to cut interest rates at the next three meetings, possibly by a substantial half percentage point. Adams, who previously worked at the New York Fed, said there is enough room in the market to anticipate that the European Central Bank’s rate cuts may be deeper and faster than currently priced. The currency market is currently betting that the European Central Bank will ease policy by about 60 basis points this year, while the Fed is at around 110 basis points. Adams believes that traders may increase their bets on the European Central Bank to hedge against the risk of a similar half percentage point rate cut.
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