FX.co ★ Record capital outflows push euro toward parity with greenback

Capital outflow from Europe hits new records. In 2016, the euro outflow exceeded all-time highs since the eurozone was created. Money is leaving Europe at such an impressive pace that experts predict a possible parity between the US dollar and the euro. If experts’ expectations come true, the euro will sink to the lowest level for the last 14 years.

According to the ECB statistics, investors spent €497.5 billion on financial assets outside the eurozone. In addition, global investors sold €31.3 billion of eurozone assets in 2016. Together, that adds up to a net outflow of €528.8 billion. This is an all-time record since the introduction of the single currency. In December 2016, the euro fell to 1.03 against the US dollar, the lowest since January 2003. The US Fed’s decision to increase fund’s rates also puts pressure on the euro, especially at a time when the ECB's benchmark interest rate is still negative. Investment returns on the European assets considerably declined, so, investors tend to withdraw their funds, and therefore have to sell the euro and, thus, increase downward pressure on the single currency.

“The dollar is very much on a tear, and the euro is one of the cleanest reflections of that. There's a combination of policy divergence between the Fed and the ECB, and the two economies being on two different courses,” Ned Rumpeltin, European head of foreign-exchange strategy at TD Securities, said. He expects to see the parity between the euro and the greenback at the beginning of 2017. Other experts share his opinion. Analysts at Morgan Stanley and Goldman Sachs also forecast that the euro will reach parity against the US dollar by the end of 2017. Deutsche Bank took a step further and predicted that the euro will sink to at least $0.95 in 2017.