Euro Poised to Rise to $1.50, Pessimism Overdone: Expert
Writer CNBC.com Asia
Enough of the pessimism over the euro zone, says one analyst, who points out that the disaster scenarios anticipated by financial markets for the region have not played out, leaving the euro poised for a strong rally that could take it to $1.50 next year — a 17 percent gain from where it is now.
Markets priced in a weak euro on the view that a troubled Greece would leave the euro zone, but that hasn't happened yet and "never" will, Clifford Bennett, chief economist with Orb Global Investments in Sydney told CNBC Asia's "Squawk Box."
"Markets bizarrely priced in a weak euro on the basis that Greece would leave the euro. I always forecast that Greece would never leave the euro," he said. "But even if they did, that would be a bonus for the euro rather than a negative. Markets priced in a catastrophe for Europe which just hasn't occurred and will not occur."
(Read More: The Real Solution for Greece)
International lenders this week failed again to reach a deal on how to lower Greece's long-term debt, delaying the release of the latest tranche of aid Athens needs to avoid a default on its debt.
Hanging over the single currency is uncertainty surrounding a seven-year, one trillion euros ($1.29 trillion) budget, which European leaders are in Brussels to discuss. A two-day meeting, which started on Thursday, is likely to be extended because leaders are at loggerheads over farming subsidies to France and Poland and deeper overall spending cuts demanded by Britain and Germany.
Bennett believes that euro zone leaders would agree on a budget deal even if it's at the last minute.
"I don't think we will get to a critical crisis point on (the budget talks)," Bennett said. "We're seeing the price action in the euro at the moment. It's a very firm currency. I'm still looking for the euro to go as high as $1.50 next year."
(Read More: Why All Is Not Lost for Greece, or the Euro...Yet)
And despite negative headlines on the euro zone in recent months, efforts by policymakers to end the debt crisis has lifted sentiment towards the single currency. The euro has recovered more than 6 percent from a two-year low hit in July and was trading at about $1.2870 in Asia trade on Friday.
Like Bennett, Simon Flood, chief investment officer of fund manager Lion Global Investors in Singapore, has no doubt that a budget agreement will be reached and investors should not be too concerned about the impasse.
"If you get 26, 27 people around a table, you're always going to have trouble arriving at consensus," he said, referring to the number of European leaders present at the talks. "Uncertainty is a risk but what the European leaders have demonstrated is when the push comes to shove, they always get to where they need to get to."
Even then, David Greene, senior corporate foreign exchange dealer with Western Union Business Solutions in Sydney, thinks $1.50 is too ambitious a target for the euro. More persistent problems in the euro zone such as sovereign debt will continue to plague the euro, which in fact has more room to fall, he said.
"I find that ($1.50 forecast) fairly aggressive," he said. "The last time the euro was at $1.50 was four years ago, when we didn't know the extent of the debt problems in the area. Now, we know but we haven't got any solution."
The euro could decline to $1.20, Greene said. "The risk is on the downside for the euro," he added.
—By CNBC's Jean Chua