The euro, which has shown remarkable resilience recently, saw a major selloff leading to its biggest one-day loss in a month after the European Central Bank (ECB) slashed its growth estimates for this year and next, and hinted at a possible rate cut in 2013.
Despite this setback, foreign exchange strategists expect the single currency to bounce back quickly. They see the euro supported by worries over the looming “fiscal cliff” of tax hikes and spending cuts in the U.S. and uncertainty over what the Federal Reserve’s next move will be after its bond buying program, “Operation Twist” – which involves selling medium-term bonds and using the proceeds to buy longer-term ones – comes to an end on December 31.
“We don’t think ECB President Draghi has completely killed the rally in the euro, the currency pair has had a very nice run over the past few weeks and a correction is not unexpected,” said Kathy Lien, managing director of forex strategy for BK Asset Management.
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