The most accurate foreign-exchange forecasters say the euro will slide as austerity-driven spending cuts from Spain to Italy reignite debt turmoil and drag the region into recession.
Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., who topped the list for the fourth time out of the past six quarters according to data compiled by Bloomberg, expects the euro to drop more than 5 percent to $1.24 at the end of 2012. Westpac Banking Corp., which had the second-lowest margin of error, predicts $1.26.
The next three most-accurate forecasters see euro gains continuing. Jane Foley, a London-based senior currency strategist at Rabobank International and the fifth-most accurate, said the euro may rise as the Federal Reserve keeps interest rates at a record low and the U.S. moves to cut its budget deficit after presidential elections in November.
While the Fed has said it would keep its range for overnight bank lending at zero to 0.25 percent through 2014, it’s holding off on increasing monetary stimulus unless the U.S. economic expansion falters or prices rise more slowly than its 2 percent target, according to minutes of the central bank’s March 13 meeting released on April 3. Fed Bank of Richmond President Jeffrey Lacker said a day later that U.S. economic growth next year may warrant a rate increase before 2014.
Two-year yields on Japanese bonds are at 0.11 percent, just below the one-year average of 0.15 percent. The difference between the Japanese yields and similar-maturity U.S. yields is 0.20 percentage point, up from as low as 0.08 percentage point this year in January. The spread between the Japanese securities and German two-year yields was 0.02 percentage point, after the yields were almost the same earlier this year.
Futures traders have been short the euro, or betting on a decline in the common currency, for 32 straight weeks, the longest such period since 2010.