(Bloomberg) -- The euro will fall to parity or even below the U.S. dollar for the first time in about two decades, according to ABN Amro Bank NV.
The slide in European currencies including the euro, the Swedish krona and Polish złoty will continue, according to Georgette Boele, a senior currency strategist at the Dutch lender. Physical supply disruptions to key commodities will get worse over the coming months, disproportionately hitting the euro area economy and delaying European Central Bank tightening, she said.
While the slide in the euro due to the region's proximity to the war in Ukraine has led to talk of dollar parity as an extreme scenario, it's Boele's base case. The euro currently trades around $1.10.
“We expect more negative investor sentiment going forward,” she said in a note. “When there is market panic, only safe haven currencies will rise.”
Currency options imply a roughly 13% chance of the euro touching parity with the dollar before the end of the year, according to data compiled by Bloomberg.
Europe has borne the brunt of the sell-off in major currencies, with the euro, the Swedish krona and British pound the worst performers over the last month. That reflects the economic shock to the continent, which relied on Russian commodities, raising the risk of staglation.
Read more: Stagflation Repeat of 1970s Seen by Issing as ECB's Biggest Risk
Boele sees the Japanese yen and U.S. dollar outperforming, with the haven Swiss franc underperforming because it's relatively close to the conflict. In a more negative scenario, the euro-dollar exchange rate could move toward the all-time low below 0.83, she said.
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