The US bank Morgan Stanley has forecast that the euro will sink below parity with the dollar before the end of this year, and election fever will drive down the pound to $1.39 by June.
The forecasts for the euro's fall, after a month that has drawn the first expressions of doubt from major bank analysts about the pace and durability of the dollar's rise, are among the most aggressive yet issued, and predict the single currency will be worth just 98 cents by the fourth quarter.
They stem chiefly from expectations of continued euro weakness as the European Central Bank pumps billions more in newly-created money into the financial system, rather than a bullish view on the dollar.
"The anticipated reacceleration of the US economy should keep the dollar strong," the bank said in a note laying out its spring forecasts.
"Yet, over the next couple of quarters, the pace of these gains will be muted relative to the brisk advances observed in the last three. Yield differentials will keep EUR under pressure, although JPY will surprise with its relative strength." Previously Morgan Stanley had forecast the euro at $1.05 in Q4.
On sterling, under increasing pressure against the dollar ahead of parliamentary elections in May, the bank predicted a slide from around $1.46 on Monday to $1.39 by the end of June.
Reuters polling of major bank strategists shows the euro falling just 2-3 cents against the dollar over the next year to reach $1.03 in March of 2016.
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