EUR/USD closed below parity for the first time since late 2002 on Monday. Economists at HSBC expect the world’s most popular currency pair to continue its move downward.

Eurozone-US rate differentials have been moving against the EUR since mid-June

“Much will hinge on the build-up and the result of the European Central Bank’s (ECB) 8 September meeting. The market is currently priced for 52 bps of tightening, in line with our expectations. Even if the ECB were to deliver an outsized 75 bps rate hike (not our central case), we are not convinced that it would be positive for the EUR beyond the knee-jerk reaction, as the FX market has been shifting its focus to the global growth outlook and away from the local pace of rate hikes.” 

“It is worth noting that Eurozone-US rate differentials have been moving against the EUR since mid-June.”