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Euro-Dollar Parity Could Happen: Strategist

Friday, 3 Aug 2012 | 12:58 PM ET
European Central Bank President Mario Draghi testifies before the European Parliament's economic affairs committee in his role as the head of the European Systemic Risk Board on May 31, 2012 in Brussels.
Thierry Charlier | AFP | Getty Images
European Central Bank President Mario Draghi testifies before the European Parliament's economic affairs committee in his role as the head of the European Systemic Risk Board on May 31, 2012 in Brussels.

If piecemeal responses to the European crisis continue, this strategist says watch out for falling euros.

Thursday's non-action by European Central Bank President Mario Draghi sure disappointed investors. Michael Woolfolk, senior currency strategist at Bank of New York Mellon, wasn't thrilled either.

"You don't want to come out and signal to the market that a move is going to come in terms of monetary policy unless you really have that signed, sealed, and delivered in your back pocket," Woolfolk told CNBC. "He didn't."

Draghi certainly seems to want to deliver on his rescue promises, but whether he'll be able to in the next several months is unclear, Woolfolk says, pointing to continuing German opposition.

Is EUR-USD Parity Possible?
Michael Woolfolk, Managing Director & Senior Currency Strategist, Global Markets Division, The Bank of New York Mellon says that a 10% annual slide of the Euro against the greenback is possible. This will bring them to parity in 2 to 3 years.

In fact, if the current sluggish response to the euro zone crisis continues, Woolfolk argues that it will be extremely hard on the euro.

"A move from where we are now, let's call it just above 1.20, to parity sounds like a big move," he says. But a 10 percent annual decline for several years would get the euro there, he points out. And if there were fundamental changes in global economic conditions - if, say, the Federal Reserve were to "normalize" U.S. interest rates - "I could see that," Woolfolk says.

You can watch the discussion on the video clip.

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