Euro Weak, But Parity Probably Isn't in the Forex Trading Forecast

The euro is weak in forex trading, dropping down solidly below the 1.25 level. An attempt at recovery is being made right now, with the euro gaining a little bit, but, overall, the euro remains relatively weak in forex trading against the U.S. dollar.

Weakness in the euro has prompted some speculation that parity could be on the way for the euro and the U.S. dollar on the currency market. However, this scenario is unlikely, unless the euro zone moves toward dissolution.

GFT's Kathy Lien discusses the issue of parity in FX360:

Given the rapid response of global policymakers to the volatility in the financial markets on Thursday, there is only a very small chance that the ECB would allow the euro to reach parity without attempting to stop its fall. Although a weak currency helps to boost growth, there comes a point when it becomes a greater risk to inflation and a threat to the growth in other countries. The only possible scenario under which the EUR/USD could reach that point would be if the euro was at the brink of dissolution.

However, the euro zone still has a lot to overcome, especially in terms of large amounts of debt. Until marked progress can be made in euro zone debt, it is unlikely that the euro will gain in strength.