According to Bloomberg News, around 250 respondents from different surveys say that they expect the euro to drop to $1. Russia and the European Union are expected to lose from the gas standoff.
Due to the ongoing war in Ukraine and disruptions in the supply chain, foreign exchange traders are slated to bludgeon the euro a new, thereby driving the single currency parity in nearly twenty years for the first time.
According to the 60% of the survey respondents to the MLIV Pulse survey recently, the euro will eventually be at par with the greenback. Only a small majority of the survey participants said that following the drop, it would recover again at $1.15. However, on Friday, it traded at around $1.05 since the beginning of 2017 at its weakest.
Where’s the euro headed next?
It has been almost twenty years that the Euro has dropped below USD. However, it is a close call. Around 48% of those who participated in the poll that included portfolio managers and economists predicted fresh losses to $0.95, notably bearish compared to Wall Street investment banks.
MLIV readers’ concern underscores the policy headache of the European Central Bank as it is seeking to cool the rampant price pressures without the business cycle being killed, with approximately 40% of the respondents fear a recession in that region more in comparison to inflation and an equal amount of stagflation.
Bloomberg News reports that those economists that Bloomberg has tracked have curtailed their 2022 growth in the eurozone forecast to 2.8% from 4.2%. Yet, there is a risk of escalating recession after Russia stopped gas flow to Bulgaria and Poland. As the prices rise, the business entities and consumers face a crunch, while extended lockdowns in China blight the global growth outlook.
There are no reasons to cheer
Bloomberg News reports that there is a lot of uncertainty related to the region’s outlook, as is also there for the war outcome, as stated by Frederic Oudea of Societe Generale SA while speaking to Bloomberg TV.
The Euro’s weakness has been partially due to the predication on dollar strength; however, Chair of Federal Reserve, Jerome Powell, is now downplaying the possibility of a 75 basis point hike, and the United States currency may appear to be overbought. In the meantime, movement in currency hedging prices may make it more appealing soon for the Japanese investors to be owners of bunds over Treasuries, thereby supporting the single currency.
As such, the interest rate premium of the dollar is threatening to widen. It is all about foreign exchange expectations. However, the tightening of the US monetary policy may not be adequate to boost the dollar further.
