The latest poll suggested once again that the euro is set weaken over the coming year in anticipation of a dollar rally as the U.S. Fed is widely expected to end its massive stimulus programme and hike interest rates next year.
While that makes sense as a logical explanation for currency moves, this course of events is so well understood by markets that it’s hard to imagine how anything other than a much earlier interest rate hike isn’t already priced in.
Indeed, some of the most accurate forecasters – UniCredit, Citi, Goldman Sachs and ANZ – are still gunning for the euro to rise. They say the Fed is a long way off from raising rates, and also expect investors to continue to buy European assets.
Roberto Mialich, forex strategist at UniCredit in Milan, won the top spot last year for the second time and has been among the top five forecasters in Reuters FX polls in all but one of the past six years. He expects the euro to firm further in the coming year as the economy picks up.
“One key element that is justifying the euro strength so far is because (ECB President Mario) Draghi has said he will do whatever it takes to save the euro and that should be enough,” said Mialich.
He forecasts the euro to hit $1.45 in a year, well above the consensus view for a fall to $1.29.
The rationale behind the consensus is that a stronger recovery in the U.S. could push the Fed to raise rates earlier than forecast and that could strengthen the dollar.
But recent dovish comments from Fed chair Janet Yellen have arrested expectations of an early rate hike as she said the economy remains “considerably short” of the Fed’s goals of maximum sustainable employment and stable inflation.