Euro to struggle vs dollar and pound: Reuters poll

By Jonathan Cable

LONDON (BestGrowthStock) – The battered euro will fail in the coming year to recoup its recent sharp losses as the debt crisis in the bloc rumbles on and fears over the economic stability of periphery members weighs on minds, a Reuters poll found.

The poll of 60 foreign exchange strategists, taken this week ahead of the European Central Bank’s announcement on monetary policy, predicted the euro would be trading at $1.31 in a year’s time, weaker than the $1.33 predicted in last month’s poll.

The euro, trading around $1.31 on Thursday, is seen at $1.32 in one and six months, significantly down from the respective $1.40 and $1.35 predicted last month.

“EMU tensions continuing to affect the EU periphery will easily represent a source of volatility for EUR-USD until the end of the year and likely throughout Q1 2011,” said Roberto Mialich at UniCredit.

The ECB is under pressure to act when it meets later on Thursday to help the euro zone contain a crippling debt crisis that has stoked contagion fears in the United States and Asia.

After an Irish rescue package of 85 billion euros from the European Union and the International Monetary Fund announced this week, worries remain that bailouts will be needed in other euro zone countries.

Hopes that the ECB will rush through new anti-crisis measures, such as expanding its government bond buying, helped the euro — which posted its biggest one-day rise in more than a month on Wednesday — stabilize and lifted stock markets on Thursday.

But the central bank risks disappointing markets if, as several analysts predict, it will only decide at its monthly meeting that its liquidity taps for euro zone banks will stay wide open and merely hint at more government bond purchases.

A Reuters poll published on Tuesday predicted the ECB would not announce the return of competitive auctions for its three-month refinancing operations and keep its supply of unlimited funds open to help struggling banks in the euro zone’s periphery.

The United States Federal Reserve said last month it would buy $600 billion worth of U.S. government debt by June 2011 to boost the country’s economic recovery but knocking the greenback.

Uncertainty in the market was seen driving up volatility for the euro and the yen this month. Analysts say the divergence of forecasts in Reuters currency polls offers a leading indicator of exchange rate volatility in the following month.

POUND GAINS SOME WEIGHT

Sterling will hold in a relatively tight trading band against the dollar over the coming year as a fairly strong economic recovery is offset by the impact of deep government spending cuts.

The poll showed cable at $1.57 in one month before nudging up to $1.59 in six and holding there for a further six months, compared to 1-,6- and 12-month forecasts of $1.60, $1.59 and $1.58 in November’s poll.

A Reuters poll published on Wednesday showed the chances of the Bank of England echoing the Fed and extending its own quantitative easing program were diminishing but did not see a hike from record low interest rates until next October at least.

“Strong growth data backed by impressive PMI leading indicators suggest sterling will strengthen into the year end before fiscal retrenchments undermines its advance,” said Alexandre Dolci at Societe Generale.

Data released on Wednesday showed British manufacturing activity accelerated unexpectedly to a 16-year high in November and employment climbed at a record pace, suggesting the economy may not need more monetary stimulus to stay on track for recovery.

Against the euro, the pound will also hold its own, strengthening gently over the coming year.

The euro was seen worth 84.2 pence in one and 84.4p six months before dropping to 83.0p in a year. That compares to respective 87.5p, 85.7p and 84.5p forecasts in last month’s poll.

The Japanese yen is expected to weaken gradually as geopolitical tensions in the Korean peninsula coupled with debt worries in the euro zone drive investors to the relative safety of the dollar.

The survey saw the dollar at 83.6 yen in a month from now, 85 in six months and 89.9 in a year.

This compared with 80.9, 85.0 and 88.0 in the previous month’s survey. The dollar closed at 83.7 yen on November 30, the last trading day of November and was trading around 84.1 earlier on Thursday.

(Additional reporting by Yati Himatsingka in Bangalore, polling by Bangalore Polling Unit; Editing by Toby Chopra)

Euro to struggle vs dollar and pound: Reuters poll