The most-accurate foreign-exchange forecasters say the euro will slide as austerity-driven spending cuts from Spain to Italy reignite debt turmoil and drag the region into recession.
Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., who topped the list for the fourth time out of the past six quarters according to data compiled by Bloomberg, expects the euro to drop more than 5 percent to $1.24 at the end of 2012. Westpac Banking Corp., which had the second-lowest margin of error, predicts $1.26.
April 10 (Bloomberg) — Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets, talks about Bank of Japan monetary policy and the outlook for the euro, dollar, yen and Swiss franc. He speaks with Owen Thomas on Bloomberg Television’s “Countdown.” (Source: Bloomberg)
The euro’s biggest quarterly gain in a year will prove fleeting. The economy faces “downside risks” amid rising Spanish and Italian borrowing costs, European Central Bank President Mario Draghi said on April 4. The benefits of record ECB loans to local banks, which helped drive yields down from euro-era records, are fading and the region faces recession, while the U.S. expands at the fastest pace in two years.
“One of the reasons the euro gained was that we saw some progress in the European debt crisis and some improvement in European bond markets, and we’re near the end of that,” Bennenbroek said in a telephone interview in New York on April 2. “The euro will weaken further as slow to no growth weighs on sentiment and as ECB actions continue to weigh.”
The euro strengthened 0.2 percent to $1.3131 as of 1:22 p.m. in Tokyo and gained 0.1 percent to 106.90 yen. The dollar fetched 81.40 yen from 81.49 yesterday.
The 17-nation currency strengthened 2.95 percent in the first quarter as the European Union arranged a second bailout package for Greece after the nation negotiated a debt-swap with its private-sector investors, and as the ECB provided a record amount of loans to the region’s banks. The actions reduced investor concern that the crisis would spread.
Austerity measures across the region are driving the economy into a recession, spurring concern the ECB may introduce further easing measures, according to Richard Franulovich, a senior currency strategist at Westpac in New York.
“Europe’s going through deleveraging, austerity, and growth is very poor,” he said in an April 3 telephone interview. “So you have a situation where the ECB could be easing and the Fed is basically on hold, and that should mean interest-rate differentials move in the dollar’s favor.”
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