Morgan Stanley (M&S) in a report it released on March 25 predicted that the euro might slide to parity with the dollar over the next 2.5 years as a result of policies aimed at weakening the euro.
Currency weakening likely in
eurozone
The euro, which has slid 2.6 percent this year, will continue to decline as the bailout package for Cyprus causes concern about the safety of bank deposits in the region, Hans- Guenter Redeker, the head of global currency strategy at M&S, said. He said Italy’s struggle to form a government after last month’s divided vote will also weaken the euro. “This policy concerning Cyprus, people will be getting more concerned in funding the peripheral, providing deposits there,” Redeker said. “The long-term implication is that monetary transition in Europe is not working, there’s no credit, no growth, and fiscal policy is still fragmented. So, therefore, you need to be fairly pessimistic for the outlook. What is left is that Europe in autumn is going to do the Japan,” Redeker said, referring to policies that seek to weaken currencies to support exports and growth. “That type of policy is going to come on the agenda, and when we are getting into the third- and fourth quarter, it’s coming forcefully through.”
Euro hits lowest level against
dollar in four months
The euro to dollar rate during March also supports the point raised by M&S. As of March 27, the rate fell to 1.27775, the lowest in four months. The euro to dollar rate, which stood at 1.640 as of Feb. 1, fell by 6.35 percent in two months. The monthly loss the exchange rate, which stood at 1.3020 in early March, was two percent. Hedge fund sales stemming from concerns of private investors regarding future bail-out plans in the eruozone had an impact on the fall in the euro.
Moody’s : Eurozone overrates
ability to curb crisis
As the euro continued to fall, a statement from credit agency Moody’s added to existing concerns about the future. Moody’s said the eurozone’s awkward handling of Cyprus’s bailout puts extra pressure on the bloc’s downgrade-threatened sovereign ratings and shows policymakers “overestimate their ability to contain the crisis.” Bart Oosterveld, managing director of sovereign risk at Moody’s, said: “Policymakers appear very confident that market conditions are benign enough and that they have the tools to avoid contagion to other peripheral economies and their banking systems.”
