Banks

BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Economy

Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Currencies

Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Banks

Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Currencies

Investors ready for the dollar parity party — second time around


Posted on November 23, 2016

It’s Thanksgiving, the euro is hovering around $1.06 and every punter in town seems to be dusting off the bunting for a parity party. Sound familiar? Yes, that was last year. But now, we’re in almost exactly the same position.

Last time around, the Fed spoiled the party plans by declining to deliver the gradual trickle of interest rate rises that the market had been expecting.

But as inboxes fill up with banks’ chin-stroking best guesses for the year ahead, all of them pitching bets against the euro, it does feel like this time is different.

The game changer, of course, is Donald Trump, who seems capable of achieving more than €80bn of bond purchases from the European Central Bank each month ever could.

Since his election this month, the dollar has rocketed as investors rip up their US growth, inflation and interest rate forecasts and replace them with much punchier estimates. The dollar probably has further to go against every major currency, but the euro is no exception.

A possible pointer comes from the bond market, where the gap in yields between US and German 10-year debt has now yawned out to its widest point since March 1989, before the Berlin Wall came down and before Jason Donovan fell from UK pop pickers’ affections.

The rationale for putting money to work in the US rather than in the eurozone benchmark has rarely been stronger. US Treasuries are the new high-yield market.

European politics also look unhelpful to the common currency, with the Italian referendum coming up next month and French elections in late April to early May. Société Générale thinks the run-up to the French vote could be the trigger for parity.

Deutsche Bank is going further, warning that its prediction for the euro to hit just $0.95 by the end of next year now seems “not aggressive enough”.

Do not rule out the chance of a surprisingly dovish tilt from the European Central Bank next month, and do not be shocked to see the euro overshoot, it advises. And number one in Goldman Sachs’s top trades for next year: sell euros (and sterling, of course).

One note of caution: If you can recall the last time a consensus top pick for the year ahead worked out, you have a long memory.

katie.martin@ft.com