Euro 'will soon match the dollar'

CITY economists are almost unanimous in predicting that the euro will reach parity with the dollar before the end of the year, with a growing number expecting it to happen within weeks, a Business Day poll shows today.

The euro has soared by four US cents in the past month, and today it hit a two-year high of 97.06 cents, or 64.65p against sterling. The pound hit a 17-month high of $1.5017.

Its total gains this year have sprung to nearly 8% in the face of growing concerns about the state of the American economy and corporate earnings.

Last night, economists at Deutsche Bank brought forward by six months their forecasts of when one dollar will equal one euro, predicting parity by December.

The single currency has not been at that level since January 2000.

Economists at Standard Life, Commerzbank, Standard Chartered and State Street forecast parity by the end of the summer or soon after.

Many of those predicting it will take a little longer, such as Bank of America, say the single currency could briefly touch parity in the coming

When the euro first fell through the key level, the event was greeted with a gnashing of teeth on the financial markets but few could have predicted it would slump to nearly 82 cents before the end of that year. Now, of the 10 banks contacted in the Business Day straw poll, only Merrill Lynch continues to predict that the dollar will remain above parity level for the long term.

The latest surge was triggered by news that America's trade deficit mushroomed to a record $36bn (£25bn) in April, prompting fears that US assets are no longer sufficiently tempting to suck in the foreign capital needed to finance the current account deficit.

There is a backdrop of disappointment about the pace of America's economic recovery and Wall Street weakness.

A strengthening euro could hamper continental Europe's fragile economic recovery because it will make the region's exports relatively more expensive.

However, dollar parity will be seen by markets and politicians alike as a significant psychological victory and help banish the euro's unfortunate image as a 'toilet currency'.