Euro Unlikely to Fight Back Against Dollar

The dollar's surge against the euro may be over for now but the European currency is unlikely to enjoy a pick-up any time soon as the economy slides into recession and interest rates are slashed, a Reuters poll showed.

Foreign exchange strategists may be growing nervous about making a new forecast though after a month that has seen nearly all their previous ones wiped out as currency volatility spiked higher.

A monthly poll of around 60 strategists, taken Oct.31-Nov.4 before the U.S. elections, showed they now see hardly any change between its current level for a whole year to come, with at least the range of forecasts remaining wide.

The survey showed the euro trading at $1.27 in one month and in a tight range between $1.25 and $1.26 in three months to as far as a year out.

They are the lowest median forecasts in the poll since May 2006.

Michael Probst / AP

That comes after the dollar index soared to its biggest monthly gain in October in 17 years and the euro suffered it largest monthly fall against the dollar and yen since its launch in 1999.

The forecasts mark a drastic revision from the $1.37 predicted for the euro by this time a month ago and still some way off the $1.32 it was seen trading at in a year's time.

The euro is not likely to work its way off the ropes for some time yet as the economy grinds into a recession, forcing the European Central Bank to slice away at interest rates to relieve the pain.

"The U.S. dollar will continue to benefit from ongoing deleveraging, with a worsening outlook in the euro zone economy and likely interest rate cuts from the ECB contributing to further euro depreciation," said Mitul Kotecha at Calyon.

The ECB is widely expected to axe away at interest rates again on Thursday, chopping 50 basis points off in order to aid a struggling economy.

And the euro is not the only currency facing a battle to retrieve lost ground.

A separate poll showed Asian currencies also struggling to make back some of their recent heavy losses.

Wild Swings

Volatility is also likely to be more moderate next month after wild swings through October.

Twenty-four of 35 strategists said markets have seen the worst of the volatility, while the rest said things could get wilder.

Also see On Tuesday the CBOE Volatility Index, seen as a Wall Street fear gauge, fell sharply in anticipation of more orderly trading to the end of the year after surging to a record high in October.

While forecasts for euro/dollar all look fairly stable there is as ever a great degree of varying opinion among strategists.

Forecasts for the pair range from $1.17 - $1.39 as soon as a month's time, and from $1.12 to $1.45 in a year.

Strategists have also had to rethink the outlook for the yen after a month of crazy moves in the Japanese currency that saw the G7 group of rich nations caution against such volatility and rumors swirl of central bank intervention to limit its rise.

The yen is forecast to trade at 98.0-99.0 to the dollar over the next three months, only losing modest ground to 103.0 in a year.

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