The euro may gain almost 12% to $1.45 against the dollar by year-end as the European Central Bank welcomes a stronger currency to curb inflation, HSBC Holdings Plc said.
HSBC Holdings Plc and Dresdner Kleinwort are the most bullish forecasters for the 13-nation currency reaching a record high in 2007 among 44 analysts surveyed by Bloomberg News. Rising interest rates will boost the euro, helping keep inflation under control, said David Bloom, head of foreign-exchange research at HSBC.
The euro strengthened 6.9% in the past 12 months as the ECB increased borrowing costs to 3.5% from 2.25%. Central bank President Jean-Claude Trichet, who called a 2004 climb in the euro „brutal,” last month ignored calls from French politicians such as Prime Minister Dominique de Villepin to stem the currency's gains. „How can he complain?” said Bloom in an interview on January 19. „Trichet is tightening monetary policy, so if the exchange rate is going up, it is doing the tightening for him. We are pretty bullish on the euro.”
The currency last month rose to the highest versus the dollar since March 2005 and traded at $1.2975 as of 1:05 p.m. in Tokyo. HSBC expects the euro to advance to $1.40 by the end of September before climbing to $1.45 by the end of this year. Trichet on January 11 signaled ECB policy makers will wait until March before raising rates for a seventh time since late 2005. „I would say nothing here that would change the expectation by markets that we could do something at the end of the first quarter,” he said in Frankfurt.
Consumer prices in the euro zone increased 1.9% in December from a year earlier, according to a January 17 report from the European Union's statistics office in Luxembourg, staying below the ECB's 2% ceiling. Futures traders raised bets the ECB will lift borrowing costs twice by September. The yield on the three-month Euribor futures contract for September rose 2 basis points last week to 4.16%.
The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB's benchmark rate since 1999. The economy of the 13 nations in the euro zone will expand 2.7% this year as lower oil prices and a stronger euro help control inflation, Germany's IFO, said in its quarterly economic outlook published on January 11. (Bloomberg)