By Nigel Davies
LONDON, June 3 (Reuters) - A euro rally against the dollar has forced foreign exchange strategists to ditch their forecasts made only last month for the common currency to hold around $1.30, and some now think it could crack $1.50, a Reuters poll showed.
Median forecasts in the poll of around 60 strategists published on Wednesday showed the euro trading at $1.40 by the end of the month, and $1.39 a year from now.
Some reckon the dollar's decline is not over and the euro may dart up towards $1.50 from around $1.42 on Wednesday, even if it takes a little longer to get there.
"Over the next six months we will probably be at $1.50, or even earlier on reserve diversification, and less forced U.S. dollar buying," said Marcus Hettinger at Credit Suisse, who was one of few respondents to predict the euro's rally last month.
May proved a lot more volatile than analysts had predicted, as financial markets grew ever more optimistic that the worst of the recession was past and the dollar was not the place to be.
Led by dollar weakness against most currencies, the euro managed to surge this week to its highest level since December at over $1.43.
The near 8 percent rally over the past month in turn wiped out forecasts made in May for the entire year ahead, when the euro was expected to trade in a narrow range of $1.30 to $1.32. But most analysts happily hugged a tight range again this month.
Hettinger said the dollar fared better at the height of the crisis on deleveraging flows, but as risk appetite picked up there would be a decline in forced buying of the dollar.
Ten analysts in the poll said the euro would soar to $1.50 or above over the year ahead, with a top forecast putting the euro at $1.60 in 12 months' time.
A surge in global stock markets to their highest levels since mid-October has helped a recent rally in currencies which are perceived as more risky such as sterling, the Australian dollar and many emerging market currencies.
Analysts also said a fall in the U.S. dollar came as investors sold out of U.S. Treasuries and moved into emerging market and other assets. But economic data point to an eventual pick up in the United States as much as anywhere else.
For that reason some analysts said the dollar would consolidate for a while and claw back some of its losses.
Forecasts of euro/dollar were wide, with the strongest prediction for it to rise to $1.46 in a month's time and the weakest for it to fall to $1.28.
TIPTOE AWAY FROM DOLLAR
A majority of analysts -- 20 of 27 who replied to the question -- said that central banks are starting a long, slow process of diversifying their foreign exchange reserves away from the dollar.
Markets assume that China, the biggest holder of U.S. debt, is already switching at the margin from the dollar and into other currencies.
But on Wednesday officials told Reuters that even a U.S. sovereign credit rating downgrade would not cause China, Japan, India and South Korea to change their reserve policies as there is no ready alternative to the dollar.
In March Chinese central bank Governor Zhou Xiaochuan floated the long-term possibility of even replacing the dollar with the Special Drawing Right, the International Monetary Fund's unit of account.
But U.S. Treasury Secretary Timothy Geithner sought to allay any worries this week when he said the United States is committed to keeping the dollar strong and inflation low.
"Diversification likely reflects the growing importance of other major currencies in terms of trade and capital flows, especially the (euro), but the pace of diversification can hardly be labelled as rapid," said Mitul Kotecha at Calyon.
Participants in the poll said countries had been gradually reducing their share of dollar holdings for some years already.
Analysts also substantially revised their outlook for other currencies. This was most noticeable for sterling, which has been battered in recent months as UK interest rates fell close to zero and the economy sank into a deep recession.
Yet like the euro, they saw it stumbling a little in the near future to trade around $1.57 in three months, before climbing back to $1.60 in a year.
(Polling by Bangalore Polling Unit; Editing by David Stamp)