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The Euro-Dollar Parity Bet Is Back

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  • The Euro-Dollar Parity Bet Is Back

Donald Trump’s electoral upset has breathed new life into the bet that diverging economic paths will drive the euro toward parity with the dollar for the first time since 2002.

Traders see about a 45 percent chance the European currency will sink to $1 by the end of 2017, about double the probability assigned a week ago, data compiled by Bloomberg show. The president-elect’s pledges to boost spending and cut taxes are fueling speculation that economic growth will accelerate, pushing the Federal Reserve to raise interest rates more quickly. That sentiment sent a gauge of the dollar to the strongest since February on Monday, while the euro fell to about $1.07, its lowest level this year.

For Deutsche Bank AG, the world’s fourth-biggest currency trader, the election results are enough to jolt the euro out of a range it’s been stuck in for months and push it below $1 in 2017. Calls for parity crumbled this year as the Fed cut back on the number of expected rate hikes, even as the European Central bank continued to add unprecedented amounts of stimulus. Now Trump’s win is rekindling the wager that drove the dollar to back-to-back annual gains in 2014-2015, for its biggest two-year rally since the euro’s 1999 debut.

“Divergence is back,” George Saravelos, a strategist at Deutsche Bank in London, wrote in a report dated Nov. 13. “The Trump victory has changed things.”

2002 Echo

Saravelos forecasts the euro will drop to $1.05 by year-end and 95 cents by the end of 2017, which would be its weakest since June 2002. The consensus on Wall Street is still for a stronger euro. The shared currency will climb to $1.11 by the end of 2017, according to the median forecast in a Bloomberg survey.

The dollar’s strength in recent days runs counter to the consensus before the presidential election — that a Trump victory would spur a rout in the U.S. currency as investors anticipated financial-market volatility that might cause the Fed to delay rate increases. The focus turned instead to the potential for economic stimulus. The Republican’s pledges include spending from about $500 billion to $1 trillion over a decade on roads, bridges and airports.

Traders assess about a 92 percent probability to a Fed hike next month, up from 80 percent on Nov. 7, according to data compiled by Bloomberg based on fed funds futures. The calculation is based on the assumption the effective federal funds rate will trade at the middle of the new range after the central bank’s next increase. Higher rates tend to boost the appeal of holding money in a given currency.

Yield Appeal

Deutsche Bank forecasts the dollar will rank among the the highest-yielding currencies in the Group-of-10 nations if the Fed raises rates next month. The extra yield on U.S. 10-year notes relative to German equivalents is already the highest since at least 1990.

Against a backdrop of a strengthening U.S. job market, hedge funds and other large speculators signaled confidence in the dollar’s outlook heading into the election. They raised net bullish bets on the greenback to about 221,000 contracts in the week through Nov. 8, the highest since February, according to Commodity Futures Trading Commission data.

“We see parity sometime in the first quarter of 2017,” said Enrique Diaz-Alvarez, chief risk officer at foreign-exchange broker Ebury in New York. “Trump’s policies of pushing fiscal expansion on an economy that is near full employment are going to be met by a faster pace of hikes than there would have been otherwise.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Forex

CBN Moves Against 55 Companies, Individuals for Forex Infractions

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CBN Commences Investigation into FX Activities of  55 Companies, Individuals

In an effort to ease foreign exchange pressure and better manage the dwindling foreign reserves, the Central Bank of Nigeria has intensified fight against companies and individuals taking advantage of the nation’s limited foreign reserves.

The apex bank said it has commenced investigations into the activities of 55 companies and individuals engaging in foreign exchange transactions.

The central bank attributed the reason for the investigation to foreign exchange deals outside the official Investors & Exporters (I&E) forex window.

Some of the companies being investigated are Stallion Nigeria Limited, Interswitch Nigeria Limited, as well as a leading global shipping line, CMA CGM Nigeria Shipping Limited.

Other big names on the list are Petro-Afrique Energy Services Limited, Steel Force Far East Limited, Auto Petroleum Company Limited, Cavendish Mechanicals Limited, Aquashield Oil & Marine Limited, Haitch & Elf Integrated Services Limited, Fenog Nigeria Limited, and Promasidor Nigeria Limited.

The I&E window was established to facilitate foreign exchange transactions and encourage a moderate market-determined exchange rate.

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Naira Declines to N465 Against US Dollar on Black Market

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Naira Dollar Exchange Rate

Naira Falls to N465 Against US Dollar on Black Market

Nigeria’s economic uncertainties continued to weigh on the Nigerian Naira despite the Central Bank of Nigeria’s forex sale resumption.

The local currency declined by N3 from N462 a US dollar to N465 on the black market even with over $58 million injected into the forex market through the bureau de change.

Against the British Pound, Naira depreciated by N5 from N595 to N600 on Friday while it dipped by N3 against the European common currency to N548, down from N545 it traded on Thursday.

A series of weak economic fundamentals and anti-people policy continued to hurt the nation’s economic outlook and investors’ confidence.

In a recent event, the Nigerian government simultaneously raised electricity tariffs, pump prices and foreign exchange rates in an economy that depends on imports for most of its supplies.

Also, with the unemployment rate at over 27 percent, inflation rate over 13 percent and the number of companies shutting downing operation rising on a daily bases, foreign investors and even local investors are now holding back on investments needed to support the nation’s weak foreign reserves and cushion the negative effect of COVID-19.

While the exchange rates have moderated slightly from COVID-19 peak, it remains close to COVID-19 record.

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Zenith Bank Joins Other Banks to Cap International Spend Limit at $100/Month

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Zenith Bank Caps International Spend Limit at $100 Per Month

Following persistent forex scarcity impacting the nation, Zenith Bank has joined other deposit money banks capping international spend limits.

In an e-mail to customers, the lender said “Please be informed that the monthly international spend limit for your Zenith Bank Naira Card has been reviewed to US$100 while the use of Zenith Bank Naira cards for international Automated Teller Machine cash withdrawals is still temporarily suspended.’

It added that this review is in response to change in Nigeria’s macroeconomic factors.

The bank, however, advised those with higher international spend requirements than the US$100 stipulated above to visit any Zenith branch and request a foreign currency debit or prepaid card “which are available in US Dollar, Pounds and Euro variants.”

This is coming a few weeks after UBA, GTBank, First Bank and others capped their international spend limits to $100 for similar reasons. However, Zenith’s decision was after the Central Bank of Nigeria commenced forex sale to the Bureau De Change Operators across the country.

 

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