Finance Dublin
Finance Jobs
Thursday, 18th April 2024
    Home             Archive             Publications             Our Services             Finance Jobs             Events             Surveys & Awards             
Panel expects US dollar to continue to outperform Euro Back  
Each month, the Finance Markets Panel, which consists of leading Irish market participants and analysts, provide views on key financial markets, covering currencies, equities and the gilt markets.
This month’s contributors are: James Jordan, senior FX trader, Ulster Bank, Niall Dunne, treasury economist, Ulster Bank, Alan O’Neill, head of corporate treasury, Barclays Bank, Eugene Kiernan, head of asset allocation, Irish Life and Enda Coll, head of institutional treasury, Anglo Irish Bank.

Euro 1 month interbank rate
European short interest rates have been fairly static for a while says Kiernan. Given the better global picture combined with forces such as the rise in oil price as a result of tensions in the Middle East,which will draw a floor under any inflation rate declines, he views the window for rate cuts in Europe as closed. European interest rates he feels can stay on hold for some time.
According to Coll the statement from the ECB after it’s meeting on April 4th, where it left official interest rates unchanged, pointed to a recovery underway in the Euro-zone economy and inflation heading back towards 2 per cent in the months ahead. Therefore Coll feels that the ECB will hold interest rates at current levels, and will probably not increase them until the last quarter of 2002.

5-year euro swap rate
The market appears overly pessimistic in terms of pricing in interest rate hikes, and I expect to see five-year swap rates fall back towards 4.70 per cent in the next quarter says Coll.
Kiernan says that all longer dated swap rate forecasts see slightly higher rates to the end of the year and he forecasts a rate of 5.20 per cent in a 3-6 month time horizon.

EUR/GBP remains over-valued on a PPP basis says O’Neill. This, plus lobbying pressure from the manufacturing sector and perceptions that sterling is overvaluedon a broad- based basis should maintain pressure for a weaker sterling across the board he adds and his sixth month forecast is 0.6200. Kiernan says that opinion polls seem somewhat less enthused about Euro-entry in the past month and on balance he would still see sterling weakening.

Dunne says that tensions in the Middle East have impacted the markets perception of the chances of, and the strength of the US recovery, and as a result the USD has seen a wave of pressure. However, he says that the EUR has been unable to break through the key resistance level of 0.89. While the price of oil continues to rise, the potential inflationary impact on the US will hurt the USD. A break of 0.89 is needed before it can move higher, but the markets atypical reaction to the Middle East crisis (normally the USD is a safe-haven in times of geopolitical turmoil) shows that pro-US sentiment could be beginning to wane.
O’Neill says that the first quarter of this year witnessed lacklustre times in the FX market - the implied 3m vol in EUR/USD fell from 11.25 per cent on Jan 2 to 8.45per cent at time of writing reflecting the lethargy in currency markets. We expect the dollar to outperform the euro in Q2 and have a minimum target of 0.8300 vs Euro. One reason behind this move is corporate profit growth looks poised to pick up in the US and confirmation of higher profits growth will encourage confidence in a sustainable upswing in US thereby attracting capital in flows.

Further correction from recent highs is favoured says Jordan targeting 10000 before turning up again looking for a rally towards 11000 further out.
Kiernan says that he sees 2002 as an up year with better prospects outside the US, essentially on valuation grounds. But the Dow has performed well so far this year beating both the broader S&P and the NASDAQ. The Dow Jones index should hold on to its gains and he expects it to to go to 10300 within 3-6 months.

10-year euro bond yield
Jordan says that over 5.00 is bearish for the bund with further gains likely now. He says that the target is 5.61 next and 5.75 by the end of the year.
Coll says that the market appears overly pessimistic in terms of pricing in interest rate hikes, and so expects to see ten-year yields at 4.90 per cent in the next quarter.

Digg.com Del.icio.us Stumbleupon.com Reddit.com Yahoo.com

Home | About Us | Privacy Statement | Contact
©2024 Fintel Publications Ltd. All rights reserved.