By Mike Bird and Ira Iosebashvili
The euro continued its longest losing streak against the U.S. dollar on Friday, falling for the 10th consecutive trading day.
The single currency is now down around 4% from last week's U.S. presidential election, closing at $1.058 in European trading, the lowest level since the end of 2015.
The sharp drop is fueling debate about whether the euro may reach parity with the greenback for the first time in 14 years, as expectations for growth, inflation and interest rates diverge.
The last time the possibility of euro-dollar parity was widely discussed was early 2015, when the euro weakened on a trade-weighted basis against a basket of international currencies.
This time, most of the move has been against the U.S. dollar.
"The U.S. used to have some monetary policy divergence with the rest of the world, now we also have fiscal policy divergence, which should be very beneficial to the dollar," said Adnan Ajant, head of currencies at asset management firm Fischer Francis Trees & Watts.
Asked earlier this week if he believed the euro would reach parity, Mr. Ajant said "well that's only 7% to 8% away; yes I would think so."
Though bond yields have risen in both the U.S. and Europe, the shift has been much sharper in U.S. Treasurys than Eurozone government debt.
The yield on 10-year Treasurys is more than 2 percentage points above the 10-year German bund yield, for the first time since the fall of the Berlin Wall, highlighting growing divergences in expected economic performance.
Steeper yields and interest rates in one country tend to strengthen the local currency, as international investors flock to assets with a higher return.
"Both blades of the scissor are moving against the euro right now," said Marc Chandler, a strategist at Brown Brothers Harriman in New York. "My view is that the currency goes to record lows."
In October 2000, the euro fell below $0.83, its weakest level ever against the dollar.
Even before last week's presidential election lighted a fire under inflation expectations and sent U.S. Treasury yields surging, speculators had built up a growing short position in the futures market.
In the four weeks to Oct. 8, the U.S. Commodity Futures Trading Commission recorded an average of 124,956 more short than long positions of EUR125,000 or more against the euro, a nine-month high.
Earlier this week, Credit Suisse revised its 12-month forecast for the euro-dollar exchange rate to parity, down from $1.05, citing the divergence in interest rates and political risks in the Eurozone.
A coming referendum on constitutional reform in Italy could threaten the government of Prime Minister Matteo Renzi. The resignation of Mr. Renzi--one of Europe's most reform-minded leaders--could freeze Italy's economic overhaul and erase the meager growth the country has generated.
Investors "were surprised on Brexit, they were surprised on the U.S. election. This time, they will want to be more cautious when it comes to Europe," said Mark McCormick, head of North American foreign exchange strategy at TD Securities.
Not all strategists are enamored with the argument for parity.
"It's a dollar story rather than a euro story, so the question is how much the dollar can rise from here. A lot of good news has already been priced in for the U.S., possibly too much," said Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management, who also bet against parity in early 2015."If you just look at how the eurozone has performed in terms of data, things look better than they did the last time people were gunning for parity," Mr. Yu added.
Write to Mike Bird at Mike.Bird@wsj.com and Ira Iosebashvili at email@example.com
(END) Dow Jones Newswires
November 18, 2016 12:07 ET (17:07 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.