Bank of America analysts noted that while some market observers continue to speculate on the possibility of the exchange rate reaching parity, such an event is considered rare and historically short-lived.
They pointed to a chart showing that, barring the dotcom bubble burst cycle, the probability of the currency pair trading at or below parity is virtually non-existent based on quarterly data.
The analysts explained that the future trajectory of the EUR/USD will depend on a delicate interplay of factors.
These include the tension between unsustainable debt levels and the perceived economic superiority of the US, as well as Europe’s efforts to consolidate its position in the face of significant geopolitical and energy-related challenges.
Moreover, the possibility of a trade war after the US elections could put additional downward pressure on the euro.
Despite these risks, Bank of America remains of the view that a decline to parity is likely to occur only in extreme tail risk scenarios and is not expected to persist for an extended period of time.
Bank of America’s assessment comes against a complex backdrop of global economic uncertainties that continue to impact currency valuations. The EUR/USD pair in particular serves as a barometer of the relative economic health and policy between the Eurozone and the United States.
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