The euro will continue plunging against the dollar, possibly approaching parity, even if European policymakers succeed in preventing defaults and keeping the currency zone intact, experts say.
The euro is currently trading around 1.28 per dollar but the unit could sink as low as 1.20 per greenback as the year progresses, as confidence in the European economy — and its leadership — is already shaken while interest rates are remain low.
A 1-to-1 exchange rate, known as parity, could occur if a country does default.
"Irrespective of whether policymakers (including the ECB) reach an agreement to stabilize the government debt crisis or not, we believe the euro will fall," ING analysts write in a market research note, according to CNBC.
"The euro area credit crunch is a reality, and the eurozone requires softer monetary conditions, including a weaker euro."
The European Central Bank left interest rates unchanged at 1 percent recently, as despite a looming recession facing the continent, some bright signs are popping up, including stronger-than-expected German export numbers and French confidence figures.
A weaker euro, which makes Europe's exports more attractive, could cushion the blow of an economic collapse.
Still, the economy is headed south but just at a slower pace.
"The sense that the economy is in freefall is abating but it’s too early to talk of a turning point," says Juergen Michels, chief euro-area economist at Citigroup in London, according to Bloomberg.
"The picture in the core countries has improved a bit and a weaker euro will help, but further austerity measures in the periphery countries will drag on growth, and the specter of a credit crunch has not been banished.”
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