Fed – Not Greece – Could Provide Boost to Euro This Week
The euro reversed strong gains against the U.S. dollar in Asian trade on Monday, as optimism surrounding the expected win by Greece’s pro-bailout parties in Sunday’s critical elections proved short-lived for the single currency.
Still, one strategist remains upbeat on the outlook on the euro , and it has little to do with Greece.
“(One) reason we expect the euro to push higher has nothing to do with Greece. We think the Fed is going to open the door to further stimulus (on Wednesday),” Ashraf Laidi, Global Chief Strategist at City Index told CNBC Asia’s "Squawk Box" on Monday. Laidi forecasts the euro-dollar will move as high as 1.2850 this week.
Citing recent weakness in U.S. economic data, Laidi predicts the country’s central bank will extend Operation Twist at the June 19-20 meeting.
The $400 billion program, which was announced in September and ends this month, involves selling short-term Treasury securities and buying longer-term bonds. The goal behind this is to push down longer-term interest rates and encourage more borrowing and spending.
“Even though Operation Twist is not going to prove (to be) net effectively positive, the fact that the Fed is going to open the door for that, is going to be a positive for risk appetite,” he added.
While Laidi believes the outcome of the Greece elections will provide support for the currency, he says concerns over the solvency of the debt-ridden nation will limit any major upside.
The euro initially soared against the greenback to 1.2747 after Greece's New Democracy and Pasok parties took 162 seats in the 300-member parliament, according to the official projection by the Greek Interior Ministry on 99 percent of the votes. But the rally quickly lost steam, as markets recognized there are still myriad hurdles ahead for the Greek economy.
Gina Sanchez, Director of Equity and Asset Allocation Strategy at RGE, who sees a default and orderly Greece exit in the next 12-18 months believes that any gains seen in the euro are “unsustainable”.
“It’s an unsustainable place where they are. Greece is already way off track, they are going to try to renegotiate (the bailout package) and so a lot of where we are right now, a lot of the rally (seen earlier) is really unsustainable in our opinion.”