Strong Dollar Threatens 'Dollar:Euro=1:1'... International Finance Center "Won Also Weakening" [Korea Economic Daily Forex Market Watch]

As the strong dollar phenomenon expands, there are forecasts that the exchange rate between the Euro and the Dollar could fall below 1:1. Concerns are emerging that if the value of the Euro falls and demand for currency hedging arises, the overall weak sentiment of global currencies excluding the Dollar could be strengthened.

According to the report 'Possibility and Impact of Euro Falling Below Dollar 1:1 Parity' published by the International Finance Center on the 9th, the Euro is trading at around 1.03 dollars per Euro. With the value dropping to as low as 1.02 dollars per Euro on the 2nd, concerns are rising that the 'parity' phenomenon, where the values of the Euro and the Dollar become equal, could occur, or even the 1:1 ratio could be broken.

The Euro's weakness is due to concerns over the strong trade policy implementation, such as the universal tariff imposition by the Trump administration in the U.S. The perception that the global dollar strength trend may continue is burdening the Euro.

Internally, concerns about growth sluggishness in the Eurozone are becoming visible. The intensifying political instability in major countries like Germany and France is also cited as a factor dragging down the Euro's value.

The International Finance Center assesses that these factors significantly leave room for the Euro's value to fall below the 1 dollar per Euro level. Since the launch of the Euro, such a phenomenon has only occurred twice, in February 2000 and November 2022.

Kim Yong-jun, a specialist at the International Finance Center, explained, "If the exchange rate falls below the 1:1 ratio, the volatility of exchange rates in the global forex market is expected to expand, increasing interest in exchange rate policies among major countries, including the Eurozone." Kim particularly noted, "As billions of dollars worth of 'Euro/Dollar barrier options' expire, hedging demand could surge, increasing exchange rate volatility," adding, "In this case, it could also affect the weak sentiment of other currencies against the Dollar in the global forex market." The Euro's weakness could also impact the Won.

However, Kim assessed that the possibility of this phenomenon continuing long-term is low. He analyzed, "Due to the uncertainty of the Trump administration's trade policy and the burden from the accumulated dollar strength, the additional strength of the Dollar may not be significant, and the proactive economic stimulus measures by major Eurozone countries may prove effective."

Reporter Kang Jin-kyu josep@hankyung.com