US dollar exchange rate (USD) forecasted to appreciate vs EUR as EMU crisis continues; but the ECB is standing by say UniCredit

• 

Details

Category: US Dollar Exchange Rate

Published on Friday, 10 February 2012 12:17

Written by Rob Samson

An exchange rate forecast note on the US dollar exchange rate, released by UniCredit Bank, has shown that the Italian bank predicts a further weakening in the euro dollar exchange rate.

"Downtrend to be continued due to persisting EMU-Sovereign crises and our assumption of a better performing US economy," say UniCredit.

That said, a substantial fall in the world's most heavily traded exchange rate is unlikely.

An argument forwarded by UniCredit Bank analyst Michael Rottman suggests that while there is a lot to be fearful of with regards to the Euro, there is always the supportive net that is the ECB lying in wait.

---

Advertisement - Article Continues Below

---

Rottman says:

"The desperate search by the euro skeptics for negative arguments is of course falling on fertile ground given the packed event calendar of the next four months and it is in some cases assuming far-fetched characteristics."

Examples:

A) The suspicion that German Chancellor Merkel's active participation in the French election campaign through her TV appearance with President Sarkozy will in the event of a Hollande election victory (first ballot on 22 April; runoff election on 6 May) produce a difficult chemistry going forward between Germany and France.

B) The attempted charm offensive by some banks, which announced that they did not take part in the first 3Y LTRO, was causing some uncertainty about the amount of the upcoming three-year tender on 28 February. Without speculating on the long-term ramifications of the sharply increasing ECB balance sheet, the short-term chain of cause and effect applies: the higher the 3Y LTRO allotment, the larger the short-term potential for
sovereign bonds of the periphery countries.

C) The surprisingly strong increase in non-farm payrolls in the USA is being put under the microscope, and is being attributed to seasonal discrepancies.

The above would point to serious risk-off moves in global markets, which would support the US dollar exchange rates.

But as mentioned, any decline in the euro will likely be kept under check by the ECB. Indeed, the ECB presents upside risks for the European economy, and thus the euro:

"Yesterday's ECB press conference raised the question as to whether a pronounced consolidation will start already at the beginning of March. The odds for a continuation of the recent rally are surely
increasing.

"All in all, the press conference once again underpinned the current 'larger than life' status of the ECB and the message from the last few days can be summed up with "it ain't over 'til it's over" and "you can't fight the central bank".