Euro’s stubbornness will drag on growth

While we’re still hopeful that the divergence between US and euro-zone monetary policy will help to bring the euro lower against the US dollar, the combination of the Fed’s recent dovishnessand hints from the ECB that it is running out of policy ammunition suggest that this process will be slower than we had thought.

We have therefore nudged our forecast for the euro at the end of this year up from $1.00 to $1.05. We still think that the euro will fall to parity in 2017 but, in the meantime, its stubbornness will act as a drag on economic growth in the currency union.