Euro Parity: What Will it Take to Drive the EUR/USD to 1.00?

Article By: ,  Head of Market Research

EUR/USD Key Points

  • EUR/USD has only traded below parity (1.00) on two occasions in its 25-year history.
  • EUR/USD is threatening to break down from its nearly 2-year range between 1.05 and 1.12.
  • A confirmed breakdown could bring the psychologically-significant 1.00 level back onto trader’s radars.

Numbers often carry more weight than their mere value. They can symbolize achievement, effort, or even disappointment.

Take a marathon finish, for example: runners crossing the line at 2:59:30 are elated, celebrating the accomplishment of breaking the elusive 3-hour barrier. But those crossing a minute later—just as fit, just as well-trained—may feel deflated, their months of preparation overshadowed by missing that key milestone. Sometimes, a number isn’t just a number—it’s a defining moment.

Similarly, in financial markets, certain numbers—like EUR/USD parity—hold symbolic significance far beyond their numerical value, shaping sentiment and strategy in profound ways. For the uninitiated, “parity” in the context of foreign exchange refers to a situation where two currencies are equal in value. When the EUR/USD exchange rate is 1.00, one euro is worth exactly one US dollar. While parity is just a number in theory, it often carries significant psychological and economic weight.

A Brief History of EUR/USD Parity

  • Launch of the Euro (1999): The euro was introduced as an accounting currency in 1999, replacing a basket of European currencies. Initially, the EUR/USD exchange rate started around 1.17 but quickly declined below parity due to skepticism about the euro's strength and the Eurozone's economic cohesion.
  • 2000-2002 Decline Below Parity: By late 2000, EUR/USD fell to a historic low of 0.8230 as investors favored the stronger US economy and dollar. Concerns over the Eurozone's economic growth weighed on the euro.
  • Rise Above Parity (2002): The euro regained parity in mid-2002, driven by improving Eurozone economic data and waning confidence in the US dollar due to geopolitical risks and the aftermath of the dot-com bubble.
  • Bull Market for the Euro (2003-2008): The euro climbed to historic highs of over 1.60 by 2008, fueled by a weaker US dollar during the Global Financial Crisis (GFC) and a growing belief in the euro as a viable alternative reserve currency.
  • Fluctuations Post-Crisis: Since the GFC, the EUR/USD has seen periods of strength and weakness, influenced by Eurozone sovereign debt crises, US Federal Reserve policy changes, and other global economic factors.
  • Parity in Recent Years (2022): For a couple of months in late 2022, EUR/USD fell back below parity for the first time in two decades due to a combination of aggressive Federal Reserve rate hikes, the economic impact of the Russia-Ukraine conflict on Europe, and surging energy prices that threatened Eurozone growth.

Source: TradingView, StoneX

Will We See EUR/USD Parity Again?

As traders have started to appreciate some of the structural issues with the Eurozone economy and the potential for outperformance in the US (the “US Economic Exceptionalism” narrative) in recent months, traders have started to wonder whether EUR/USD may fall to parity again in 2025.

Ultimately, exchange rates are driven by central bank interest rates more than any other factor, or to be more accurate, expectations for changes in future central bank interest rates. As of writing, traders expect the European Central Bank (ECB) to cut interest rates relatively aggressively in the coming year, from the current 3.25% to 1.80% in one years’ time. The current political turmoil in European leaders Germany and France no doubt plays a role as well.

Meanwhile, expectations for interest rate reductions from the US Federal Reserve have faded, with traders pricing in only a 2-3 25bps interest rate cuts over that period from the current 4.50-4.75% range to closer to 4.00%. In other words, traders are currently pricing in the US-Europe interest rate spread widening from 1.25% today to closer to 2.00% at this time next year. This spread (along with expectations for how it will evolve in the coming days) will continue to evolve with economic data in the weeks and months to come, with a special focus on inflation and employment data on either side of the Atlantic playing the biggest role.

In order for EUR/USD to approach parity again, inflation figures in the US will likely have to remain stubbornly above the Fed’s 2% target backed by continued strength in the labor market; conversely, weakening Eurozone economic data could prompt even more aggressive easing from Madame Lagarde and Company at the ECB, likely weighing on EUR/USD.

Euro Technical Analysis – EUR/USD Daily Chart

Source: TradingView, StoneX

Turning to the chart, EUR/USD is threatening to break down from the 1.0500-1.1200 range that has kept prices contained since the start of 2013. After a nearly 2-year sideways consolidation, a strong directional thrust is possible if the breakdown is confirmed. In that scenario, a continuation toward at least 1.02, if not outright parity (1.00) could be in the cards as we flip the calendars to 2025.

On the other hand, a bullish reversal and “false breakdown” scenario could lead to a snapback rally toward the middle of the range in the 1.07-1.08 zone as aggressive shorts get squeezed. One way or another, we’ll soon know whether EUR/USD parity is an imminent possibility.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

Contracts for Difference (CFDs) are not available to US residents.

FOREX.com is a trading name of GAIN Capital - FOREX.com Canada Limited, 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA is a member of the Canadian Investment Regulatory Organization and Member of the Canadian Investor Protection Fund. GAIN Capital – FOREX.com Canada Limited is a wholly-owned subsidiary of Stonex Group Inc.

Complaints are taken very seriously at FOREX.com. You can view our complaints procedure here.

Know your advisor

© FOREX.COM 2024