Currency traders on Monday were waiting for the European Central Bank's scheduled Thursday press conference on monetary policy. Analysts expect the ECB to announce an extension of its asset purchase program, which is designed to get more money circulating in the economy.
The euro "should be weakening on the back of the premise the ECB is going to ease [monetary policy] further," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie. He expects the euro to reach parity with the dollar next year, and attributed some of the euro's Monday morning strength to traders who are covering bad bets against the currency.
To be sure, some strategists said the euro may not reach parity with the dollar at all in the near future.
UBS has expected the euro to strengthen against the dollar, and on Monday reaffirmed its forecast for the euro to reach $1.12 in the next three months and $1.20 in the next 12 months.
"We think the Federal Reserve is going to stay behind the curve," said Max Kunkel, investment strategist at UBS Wealth Management. He also said he expects increased government spending to increase the U.S. current account deficit, which would limit dollar strength and allow the euro to recover.