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Euro Seen Weaker Against 'Equally Bad' Dollar

The euro is on a downward path against the dollar, though the pair are likely to remain in the same general range they have been trading in for the past two years, because the greenback is not necessarily a better currency, analysts and strategists said on Wednesday.

Euro bills and coins
AP
Euro bills and coins

The European Central Bank will announce its decision on interest rates on Wednesday and is expected to leave them on hold at their record low 1 percent, with investors looking toward ECB President Mario Draghi's news conference for clues on whether the bank will continue to inject liquidity in the markets.

The single European currency is good for trading goods and pricing, but "for keeping the value, nobody knows what will happen," Felix Adam, a currencies analyst at ACT Currency Partners in Zurich, told CNBC.com.

"At the moment in the big picture nothing is moving the euro. Political issues are so big in euro land and in dollar land," he added.

Many analysts have said the ECB should try to take measures to depreciate the euro in order to help the zone's exports and thus boost growth. But, with the fight against inflation as the central bank's sole mandate, that is not likely to happen any time soon.

"I think in the long run of course there's more room for a weaker currency policy in Europe, but this is not taking place yet. For me it's a game that is balanced," Adam said.

He sees the euro staying within the $1.25-$1.35 range for the time being, with investors looking for other, more interesting currencies in order to get better yields.

"If you look what the volatility was in euro/ dollar, it was never as low in history before. Over the last two years we were running around on the same levels," Adam said.

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The release on Tuesday of the Federal Reserve's March minutes showed the Fed was not yet ready to open the taps on a new monetary easing program – also known as quantitative easing (QE) - and the dollar surged on the news, although some market observers say the move might be short-lived.

"We are a little surprised that the market expected a QE discussion and saw the minutes as particularly significant, as the tone remained essentially dovish in maintaining the stimulus," analysts at Lloyds bank wrote in a market note.

They said the dollar had reached a key support level and "was perhaps ready to rally in any case," and that the currency's upside bias was likely to continue until data on nonfarm payrolls are released on Friday. "The unemployment rate remains the crucial statistic for the dollar," the analysts wrote.

The U.S. and Western European markets will be closed on Friday for the Good Friday holiday.

Over the longer term, the dollar is unlikely to move up much as the major currencies are all moving in step as the Fed, the Bank of England and, to some extent, the ECB are printing money, Adam said.

"They [the euro and the dollar] are not equally good, they're equally bad," he said. "The ECB are also printing money, but they are not expanding that much. I would rather see a chance that the euro would drop than that it would increase versus the dollar."

Sick with the euro/dollar status quo, investors are looking for other, more attractive currency plays.

"You have to think out of the box and go away from the mainstream," said Adam, who favors the Norwegian crown, which he doesn't think is overvalued, and the Polish zloty, although the markets for those currencies are relatively small.