Euro slide not over as pressure grows on ECB: Reuters poll

Wed Jan 7, 2015 10:31am EST
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By Jonathan Cable

LONDON (Reuters) - The euro's slide is not yet over because diverging monetary policies at the European Central Bank and the United States Federal Reserve will sink the currency to levels not seen since late 2003, a Reuters poll found.

Fears that cheap oil will tip the now 19-member bloc into a deflationary spiral have increased calls for the ECB to take urgent action, possibly as soon as the Governing Council's Jan. 22 meeting.

Conversely, the Fed is widely expected to begin tightening its policy later this year given robust job gains and bullish growth signs in the world's biggest economy. [FED/R]

"We have the existing disparity between ECB policy and Fed policy. Certainly quantitative easing is priced in to a large extent but not fully," said Jane Foley at Rabobank, the most accurate 12-month euro forecaster in Reuters polls last year.

The euro EUR= lost around 13 percent against the dollar last year and sank to a nine-year low of $1.184 on Wednesday amid gloomy economic data and renewed fears of a Greek exit that could bring the monetary union to its knees.

"Political risk is potentially the new factor for 2015 and not just with Greece ... the risk could be extended as we go into Spanish and Portuguese elections too," Foley said.

According to the poll of over 50 foreign exchange strategists, the euro will rally to $1.20 in a month then fall back to $1.18 in six months. But at the end of this year it will sit at $1.15, a level not seen since late 2003.

Nearly all those forecasts were taken before official data showed inflation fell more than expected to -0.2 percent in December. But already they were far weaker than in a poll last month when the respective forecasts were $1.24, $1.20 and $1.18.   Continued...

New 10-euro banknotes are pictured during their presentation at the Austrian national bank in Vienna January 13, 2014. REUTERS/Heinz-Peter Bader