Euro Set to Capture Currency Throne From Dollar Again in 2018
Bloomberg
Published Dec 14, 2017 07:29
Updated Dec 14, 2017 09:57
Euro Set to Capture Currency Throne From Dollar Again in 2018
(Bloomberg) -- After trouncing the dollar this year, the euro is set for a repeat performance in 2018, according to forecasters.
Buying the shared currency ranks among next year’s top trades as it’s set to get new momentum from the European Central Bank’s gradual unwind of ultra-loose monetary policy. The euro surged 12 percent for the best Group-of-10 performance against the dollar this year. ING Bank NV is predicting a gain of about 10 percent in 2018.
The median estimate of strategists surveyed by Bloomberg has the euro climbing to $1.21 by the fourth quarter while options put the odds of attaining that level at more than 80 percent by then. Another bullish indicator can be found in so-called risk reversals, where calls cost more than puts.
The focus on a more hawkish ECB dominates thinking among bulls, including Canadian Imperial Bank of Commerce. CIBC and ING had the second- and third-best forecast scores among banks and financial firms in a Bloomberg survey for the third quarter of 2017.
ING’s chief European rates strategist Petr Krpata expects currency markets to price in a deposit rate of zero long before the ECB moves.
“That will drive up the euro,” Krpata said.
The central bank’s deposit rate, now at minus 0.4 percent, has depressed the euro since going negative in 2014.
“Rolling back the deposit rate is going to be significant, because a number of central banks and sovereigns have significantly reduced euro holdings because of those negative rates,” said Jeremy Stretch, CIBC’s head of Group-of-10 currency strategy.
Still, markets aren’t currently pricing in an interest-rate increase by the ECB until at least 2019, with the central bank’s asset-purchase program set to run until at least September next year. There could also be disappointment for bulls should eurozone inflation continue to undershoot the ECB’s goal and mute hawkish pronouncements by the central bank.
The euro was steady at $1.1830 at 1:17 p.m. in Frankfurt before the ECB announces its last policy decision of the year. It added 0.7 percent Wednesday after soft U.S. consumer price data weakened the dollar.
The dollar’s pain could be the euro’s gain as the greenback is caught in the crossfire of infighting among lawmakers over taxes and unravelling optimism about fiscal easing. That leaves the dollar more vulnerable should the Fed embark on a slower-than-expected tightening path, according to London-based broker Argentex LLP.
“The euro has got greater potential to outperform the U.S. dollar,” said John Goldie, a currency dealer at Argentex. “The Fed has been raising rates for the last three years but the markets have been a little disappointed with the rate of hikes. I wouldn’t be surprised to see them slow down.”
Get The App
(Updates price in 10th paragraph.)
Written By: Bloomberg
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.