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Euro to Outperform Dollar in Next 6 Months: Economist

The euro will outperform the U.S. dollar over the next six months as euro zone countries start to rein in their budget deficits, according to HSBC’s global chief economist.

Stephen King says the growing likelihood of further quantitative easing (QE) in the U.S., contrasting with real efforts to slash budget deficits in Europe, suggests the single currency will come out stronger in the medium term.

"Our view is that the euro will survive, and therefore there’s a reasonable chance that eventually it will get going," King told CNBC.

"The good thing about the euro at the moment is at least there’s a debate going on about budget deficits, government debt, how to bring it under control. In the U.S., that’s all been postponed until after the Presidential U.S. election."

King said Washington’s failure to deal with the U.S. budget deficit had increased the chances of the Federal Reserve resorting to another round of quantitative easing.

The chance of another asset-buying policy decision is "probably greater in the U.S. than in Europe and therefore I think the dollar is more likely to weaken over the next few months," he said.

King thinks the markets are underestimating the strengths of the best performing countries in the euro zone.

"There are bits of the euro that are very weak, but there are also bits that should be appreciating today, namely the German bit of the euro," he said. "If you think about where the German euro might be trading, it might be up at $1.85 or $2."

But other analysts disagree and urge investors to be risk-neutral on the euro.

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