UniCredit Bank have today forecast the euro to rise against the US dollar on the back of a 'gradual uplift' in Eurozone economic activity.
Forecasters at Unicredit Bank have today told clients that they see a gradual rise in the euro dollar exchange rate; a view that goes against a widely-held belief that 2013 will be characterised as the year the US dollar returns to strength.
At 15:00 in London the euro dollar exchange rate is 0.4 pct up on Tuesday night's close at 1.2964. The euro pound exchange rate is 0.7 pct higher at 0.8576.
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"We think that EUR-USD should rise from current levels on the back of a gradual uplift in eurozone activity in 2H13 and improvement in current account balances. At the same time, we view EUR-GBP reaching 0.90 by year-end as the UK road to recovery remains very bumpy," says Dr. Vasileios Gkionakis at UniCredit Bank.
UniCredit have thus forecasted the euro at 1.35 against the US dollar by the end of 2013.
Factors providing potential upside for the eurozone currency
The euro has been subject to setbacks recently which are only exacerbated by a feisty US dollar.
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UniCredit say there are two driving factors in the medium term (i.e. over the next six to nine months) that should provide potential upside in the eurozone currency:
Firstly, a gradual uplift in activity that we anticipate in the second half of this year should alleviate worries about the economic outlook in the euro area, reduce further the risk premia across the periphery and ultimately increase investors' confidence in the common currency.
Secondly, the much better current account balance dynamics should offer EUR-USD further impetus: periphery c/a balances have markedly improved over the last couple of years, partly due to a curb in domestic demand but also partly to the ongoing internal devaluation currently under way.
"We expect further improvements as structural changes in the periphery are implemented and competitiveness improves. At the same time however, we think upside potential in EUR-USD might be limited to around 1.35: if growth rebounds only very slowly (as we expect), then significant appreciation of the currency is likely to result in ECB verbal intervention in an attempt to safe-guard the recovery," says Gkionakis.
Gkionakis does warn that although a negative deposit rate does not seem to be in the cards, if euro rises substantially, a negative depo rate cannot be ruled out.