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Dollar tipped to reach parity with euro following Trump win

The U.S. dollar is being tipped to rise to euro parity on belief that President-elect Donald Trump will ditch current policy in favor of a high-spend, low-tax regime.

This week the US Dollar Index, which measures dollar value against six major currencies, has risen more than 1 percent.

Bilal Hafeez, Global Head of G10 FX Strategy at Nomura, told CNBC Thursday he expects dollar strength to continue, particularly against the euro.

"We see $1.05 for euro versus dollar by end of year but a move towards parity within six to 12 months is entirely possible".

The currencies specialist said the move would be exacerbated by euro reaction to political events in Europe.

"We think given the election calendar for Europe over the next three to six months is liable to have its own upset for non-establishment parties or policies coming in to play," Hafeez said.

Trump's election pledges to spend heavily on infrastructure and defense while cutting taxes is seen as only possible if the U.S. government auctions off more government bonds sweetened with higher rates of return.

Investing in those dollar-denominated bonds would then be expected to prop up the currency's value.


Additionally, Commonwealth Bank's Elias Haddad told CNBC Thursday that Trump's policies could force the U.S. Federal Reserve to trigger rate rises at a faster pace in order to check runaway inflation.

He said a faster timetable towards higher rates will then also raise the value of the dollar.

"The economy is doing well and supportive and essentially reinforces the case for a December rate hike.

"More importantly is the risk that the Fed raises rates at a faster pace than other administrations because of Trump's inflationary policies, so that's significant support for the dollar over the next six to 12 months," he said.

And Keith Underwood, chief executive of Underwood FX, said in commentary provided to CNBC that Trump wouldn't worry if the dollar strengthens along with a growing economy.

"I don't see Trump supporting a weak dollar or a weaker dollar. Weak is not in the Trump vocabulary.

"I think the U.S. dollar will rise as the U.S. economy breaks with Obama policies and adjusts positively to the Trump lower corporate taxes," said Underwood.