Euro and pound expected to reach parity in 2018

The euro and the pound may reach equal value next year, both trading at around $1.25, according to Morgan Stanley

 
The euro and the pound are expected to be equal in value by 2018, at $1.25 each 
Author: Luján Scarpinelli
August 11, 2017

The euro could match the pound’s value for the first time ever next year, following the latter’s plunge in the aftermath of the Brexit vote in 2016, according to a new forecast by Morgan Stanley on August 11.

According to Reuters, the investment bank raised its estimate for the euro up to $1.25, reaching the same level expected for the UK currency for the first time since the euro was introduced in 1999.

Though the pound has historically been much stronger than the euro, it has weakened sharply over the last year, now trading at just €1.10, according to Bloomberg data. The last time the exchange rate was below the current level was in November 2016, when it reached a record low after the financial crisis at €1.09.

Though the pound has historically been much stronger than the euro, it has weakened sharply over the last year, now trading at just €1.10

In contrast, the largest gap between the EU and UK currencies in the post-crisis period was in July 2015, when €1.44 was needed to buy £1.

From that time on, although the Euro has lost value against a stronger dollar in the international markets, domestic issues have caused bigger falls in the UK.

Now, the new Morgan Stanley forecast estimates that the gap between the EU and UK currencies will close in less than a year from now. In 2018, the investment bank said, both currencies will meet amid contrasting fortunes.

On the one side, the euro has, over the last few months, recovered some of its lost ground against the dollar, with the bloc’s economy showing signs of healthy growth. On the other side, the pound has lost more than 15 and 12 percent of its value against the dollar and the euro respectively since the referendum. And projections are gloomy, as the Bank of England recently cut its growth forecast for this year to 1.7 percent from 1.9 percent projected in May, while it estimated inflation to peak around three percent by October, rising over the two percent target for the year.