Thursday 24 November 2016 5:00 pm

Euro and pound get a Thanksgiving relief from the stronger dollar

The euro is enjoying a small rally on as the US celebrates Thanksgiving, after it hit its lowest level since March 2015 against the US dollar, still riding high as investors continue to adjust in post-election market turmoil.

The pound held off the dollar in Thursday’s trading to rally slightly back towards $1.25 while US traders are on holiday.

The weakness of the euro has prompted analysts to speculate it could reach parity with the dollar before the end of the year. The dollar pushed the euro $1.0518, its lowest in year, in morning trading, before it rallied to $1.0559.

China’s renminbi also hit its lowest level against the dollar since 2008, despite its relative strength since the US election result. The renminbi hit a trough of six to the dollar in 2014, but has since risen to over 6.9 for one dollar.

Read more: It's official: inflation is set to rise way above target after pound's fall

The dollar’s relentless rise continues to drive global foreign exchange markets. The election of Donald Trump as US President forced markets to adjust to his campaign promises of a massive infrastructure spending boost allied with huge tax cuts.

This has been interpreted as a massive fiscal stimulus, which led investors to pull money out of bonds and instead pour it into US stocks.

“Trump’s proposed polices bear similarities to the Ronald Regan era, specifically the increased infrastructure spending, deficit spending and tax cuts, the culmination of which will lead to a large rise in inflation,” said Jordan Hiscott, chief trader at Ayondo Markets.

Prospects of a further fall towards parity will probably be decided next month when the Federal Reserve meets to set US interest rates.

“It depends on just how much the market reacts,” said Connor Campbell, financial analyst at Spreadex.

“Parity looks increasingly likely to me,” said Jasper Lawler, market analyst at CMC Markets. “The lows of March are the final chance of a rebound. The dollar is looking pretty rampant – I don’t know what could derail it.”

One possible trigger for a further movement towards parity next week is the release of US non-farm payroll and employment data. Strong data would raise expectations even further of a December rate rise, which could then prompt further dollar strengthening.

“It’s so close that it would take the smallest bit of good news,” said Campbell.

Chris Beauchamp, chief market analyst at IG, agrees: “It’s probably a lot more likely than many people realise.”

“It could be that 2017 is the year that we finally see parity,” he added.

“If you want to see whether euro/dollar will reach parity, then watch the German/US yield spread. If it starts to recover then it could drag euro/dollar up with it,” said Kathleen Brooks, research director at City Index Direct.