Euro may weaken
Goldman Sachs says the euro may fall up to 10 US cents as the ECB is set to increase currency-weakening stimulus to meet its inflation target.
|||New York - Goldman Sachs Group says the euro may fall up to 10 US cents as the European Central Bank is set to increase currency-weakening stimulus to meet its inflation target.
The investment bank predicts the ECB will maintain quantitative easing at its current pace of 60 billion euros ($68 billion) a month through the end of 2016, an extension of the plan that was intended to run until September 2016, and only end it completely in mid-2017.
“This represents a material upsizing of the original program and should weigh on the single currency,” Goldman Sachs analysts, including Robin Brooks, chief currency strategist in New York, wrote in a report dated September 20. “Depending on how credible an upsizing to ECB QE is, we therefore see scope for euro to fall between six and 10 big figures,” they wrote, referring to a drop of six to 10 cents.
The shared currency gained 0.2 percent to $1.1325 as of 9:11 a.m. in London after slumping 1.2 percent on Sept. 18, the biggest decline since August 26. The euro rose 0.4 percent to 135.98 yen. The dollar was at 120.09 yen from 119.98 at the end of last week. Japanese financial markets are shut for holidays from Monday through Wednesday.
Hedge funds and other money managers boosted net bearish bets on the euro for the third week in the period ended Sept. 15 to 84 202 contracts from 81,241, according to data from the Commodity Futures Trading Commission.
‘Very different’
The euro slid on Friday as Benoit Coeure, an ECB Executive Board member, said that US and Europe’s policy trajectories will “remain very different.” Coeure and Executive Board member Peter Praet are scheduled to speak on Monday, followed by ECB President Mario Draghi taking part in a European Parliament hearing in Brussels on Wednesday.
The Federal Reserve kept interest rates unchanged at a policy meeting last week, though Chair Janet Yellen said most officials still expect to tighten borrowing costs this year. Fed Bank of San Francisco President John Williams said on Saturday that the decision was a close one.
Coeure’s comments suggested “the Fed reaction was a tactical pause and that the ECB stands ready to do more,” said Sam Tuck, senior currency strategist at ANZ Bank New Zealand in Auckland. “Euro-dollar will be under pressure on those sort of fundamentals.”
The euro has strengthened 3.7 percent in the past three months, the third best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the best, rising 6.6 percent, and the dollar appreciated 4 percent.
The New Zealand and Australian dollars led declines among Group of 10 currencies as Asian stocks fell. The MSCI Asia Pacific excluding Japan Index slid 1.8 percent.
The kiwi slid 0.7 percent to 63.52 US cents and the Aussie weakened 0.2 percent to 71.74 cents.
BLOOMBERG