Euro Dollar exchange rate predictions revised higher by BarCap

Last Updated on Thursday, 21 April 2011 13:32 Written by Sam Coventry Thursday, 21 April 2011 13:30

A weaker US dollar will drive the EUR USD in the coming months.

---

The euro dollar exchange rate is 0.889% higher with 1 EUR = 1.4643 USD.

The euro pound exchange rate is 0.007% lower with 1 EUR = 0.8846 GBP.

The euro yen exchange rate is 0.387% higher with 1 EUR = 120.0430 JPY.

Barclays Capital have updated their EUR USD forecasts in favour of a stronger euro exchange rate.

"We now expect further EUR strength, or perhaps more to the point, more USD weakness. The key drivers of moves over the next few months are likely to be similar to those of the recent past," says Paul Robinson at Barclays Capital.

The revision sees the euro dollar exchange rate at 1.48 in one months time, up from a previous call of 1.38. In 3 months the exchange rate is called at 1.50, up from 1.38. In 6 months EUR USD will be at 1.48, up from 1.42.

As mentioned above, the key driver is expected to be a weaker US Dollar.

BarCap see continued loose monetary policy by the Fed, despite the end of QE2, contrasting with a more hawkish ECB.

More generally, supportive monetary policy will continue to lead to outperformance of "high beta" currencies and weakening the USD and JPY.

Though the EUR is not generally viewed as a very pro-cyclical currency, higher commodity prices and ongoing strong growth in Asia should provide additional support.

The need for fiscal consolidation, and macroeconomic rebalancing as a whole, in the US is more of an issue for the currency than peripheral concerns in the euro area, which are primarily about the relative position of different parts of the currency area.

BarCap say:

"Beyond three months, we expect EUR USD to remain at a high level but to depreciate to some extent. The primary reason for this is that the recent divergence between ECB and Fed policy is unlikely to be sustained. Either the global recovery will persist - in which case the Fed will start tightening policy; or it won't - in which case the ECB will stop tightening. The difference in prospects for inflation in the two economies does not seem to be large, and the stronger that EUR USD is the more it will bear down on inflation in the euro area."