LONDON The euro will reverse its recent upward trend in the coming year as the continued dovish stance of the European Central Bank contrasts with the U.S. Federal Reserve coming close to reining in its stimulus program, a Reuters poll found.
The ECB surprised markets last month when it unexpectedly cut its key interest rate to a record low of 0.25 percent. While it is not expected to chop it any further, it may unleash another wave of cheap cash through a long-term loan. <ECB/INT>
Such a move would weigh on the common currency.
One euro will be worth $1.35 in a month, $1.30 in six and $1.27 in a year, according to medians in the poll of 60 foreign exchange strategists taken this week.
But the euro was trading around $1.35 earlier on Wednesday, having gained over 2 percent from a low hit early last month despite the surprise interest rate cut, and the consensus forecasts are unchanged from a November poll.
"We anticipate a continued dovish ECB. Combined with the renewed focus on the looming Fed taper, the euro should head down against the dollar," said Anezka Christovova at Credit Suisse.
The Fed is expected to scale back its quantitative easing by March, reducing the $85 billion of Treasuries and mortgage-backed securities it has been buying every month to help prop up the economy and cut unemployment. <FED/R>
The euro zone recovery, however, remains fragile and surveys released this week highlighted a growing divergence in growth among some of the bloc's key economies. <EUR/PMIS>
Faced with the task of supporting its weaker members the ECB will conduct another long-term refinancing operation (LTRO), giving banks access to cheap cash, early next year, said over two thirds of respondents in a Reuters poll last month. <ECILT/EU>
To boost liquidity and buoy growth the ECB has already injected over a trillion euros into money markets through two long-term loans, one in late 2011 and another in early 2012.
Optimism about Britain's economic recovery has picked up recently after a string of positive data surprises. Markets are now factoring in the Bank of England raising interest rates sooner than thought just a few months ago.
That would be positive for sterling. One euro is seen worth 83.0 pence in a month, 81.9p in six and 80.7p in a year. Those forecasts compare with respective 84.3p, 83.1p and 82.1p predictions in a November poll.