NVDA Q3 Earnings Alert: Why our AI stock picker is still holding Nvidia stockRead More

Euro may not fall much more despite budget woes

Published 02/03/2010, 08:15 AM
Updated 02/03/2010, 08:18 AM

* Medians for euro/dollar adjusted down for 2nd month

* 12-month horizon $1.40 vs $1.45 in Jan poll

* 30 percent chance Greece will need to seek financial help

By Ross Finley

LONDON, Feb 3 (Reuters) - The euro's recent woes are set to linger, although the latest Reuters poll of top FX strategists, who only months ago were calling for a climb above $1.50, does not show particularly strong sentiment for the dollar.

As with last month's poll, consensus forecasts have largely moved down with euro/dollar on the foreign exchanges, although the 12-month median plunged to $1.40, about where it was trading on Wednesday, from $1.45 in the January poll.

Although the band of forecasts on the 12-month horizon was steady versus last month, the median was downgraded by 450 pips, the largest since 600 pips in the November 2008 poll in the middle of the worst financial crisis in nearly 80 years. Concerns persist about Greece's ability to turn around its dismal budget situation and which euro area member country might be the next trouble spot. Now only a handful of forecasters have retained a call for euro/dollar to break above $1.50.

There is a median 30 percent chance that Greece will need to seek outside help to get its fiscal house back in order, based on those who answered an extra question, just over half of the total 62 respondents to the FX poll conducted this week.

That is somewhat higher than the 20 percent chance put in two separate recent Reuters polls of both European Central Bank watchers and fixed income strategists.

But others say that speculation in financial markets might have gone too far about smaller euro area countries' fiscal positions after governments have spent their way out of the worst downturns in post Second World War history.

The consensus calls for no further weakness and only 11 of 62 strategists are willing to bet the euro will fall another 10 cents to $1.30 or below at some point in the forecast horizon.

"Greece, Portugal Spain and Ireland are not about to sink into the sea," said Nicole Elliott, technical analyst at Mizuho Corporate Bank, who has euro/dollar at $1.59 in 12 months.

"The whole idea is overdone but they (markets) are correctly fixating that this year's problem is and will be sovereign debt. Government largesse last year has dumped us with this."

As with the January poll, there remained a striking gap among analysts on where euro/dollar will trade even though the consensus is for little change from current rates:

Forecasts for the 12 month horizon ranged from $1.20 to $1.60, the same as the last several months of polls.

Optimism about economic recovery from the Great Recession of 2008/09 priced into world stock markets since March was in part validated by much stronger than expected fourth quarter U.S. economic growth figures late last week, which could help the greenback.

"Fundamentals support the dollar," said Aurel BGC's Jean-Louis Mourier, who was the most accurate forecaster in the January Reuters poll for one-month views on the major currencies.

"The economic recovery is stronger in the U.S. than in Europe or in Japan and it appears more and more evident that the Fed will have to normalise its policy sooner than the ECB or the Bank of England," he said, maintaining the most bearish view on 12-month euro/dollar since October.

But many remain skeptical that consumers will take the baton from a rebound in manufacturing, particularly once aggressive government support programmes start unwinding. (Polling by the Bangalore Polling Unit; Editing by Ron Askew)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.