Prediction: Euro Worsening to Reach Near Dollar Parity

Just after a sweltering Fourth of July weekend, new predictions are calling for a stronger-looking US dollar over the next year… at least in terms of the euro. A number of currency forecasters, recognized by Bloomberg as some of the world’s most accurate, are predicting the euro will continue to weaken and as is destined to hit near dollar parity in 2011.

From Bloomberg:

“Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto, said the euro will depreciate to $1.13 in the third quarter, $1.08 by year-end and may near $1 in 2011 before recovering. Osborne, whose predictions were within 4.1 percent of the mark on average, according to data compiled by Bloomberg, was echoed by the nine following most-accurate forecasters in anticipating a lower euro in the next two quarters.

“The euro weakened 15 percent against the dollar in the first half on speculation record budget deficits from Ireland to Portugal and Greece will force governments to cut spending and reduce economic growth. Bond yields among the euro-area’s so-called peripheral nations surged relative to German bunds even as European Union leaders crafted an almost $1 trillion aid package to avoid sovereign defaults.

“‘It’s going to be an immensely challenging environment for these economies to try and regain competitiveness internally within the euro zone,’ said Osborne, 47, who has been head of currency strategy at TD Securities since he joined in 2006 from Scotia Capital. ‘The ECB is moving towards its version of quantitative easing. It suggests they’re going to be very late now to the tightening cycle.'”

As recently as 2008 the euro was over $1.50, but this past June it hit a four-year low of about $1.18 and its outlook remains gloomy. In describing the possible future of the euro zone, Bloomberg cites former Fed Chairman Paul Volcker, who indicated that “the [euro] decline threatens to break up the region.” It’s an oft-repeated refrain and not exactly a message that bolsters confidence in the continent’s currency. At this point the US dollar is really just the lesser of two evils, but it’s encouraging to see a prediction of some relative dollar strength timed right around the nation’s birthday.

You can read more details in Bloomberg’s coverage of how the euro’s worst is still yet to come.


Rocky Vega,
The Daily Reckoning