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Tuesday, 16th April 2024
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Euro to consolidate its rise against the dollar Back  
Each month, the Finance Markets Panel, which consists of a group of leading Irish market participants and analysts, provide their views on key financial markets, covering currencies, equities and the gilt markets.
This month’s contributors are: James Jordan, technical analyst, Ulster Bank, Niall Dunne, financial markets economist, Ulster Bank, Eugene Kiernan, head of asset allocation, Irish Life, Alan O’Neill, head of corporate treasury, Barclays Bank and Enda Coll, head of institutional treasury, Anglo Irish Bank.

Euro 1 month interbank rate
Kiernan sticks to his view that rates will be gradually nudged upwards over the balance of the year as growth takes hold, and says the ECB see the inflationary environment as getting ‘less satisfactory’. He sees the 1-month rate increasing to 3.4 per cent over the next 3-6 months. Coll says that the fact that recent Eurozone inflation came in at 2 per cent in May and is likely to remain close to that level for the rest of the year should ensure that the ECB will hold interest rates at current levels for the next few months. He still feels that the ECB will not raise interest rates until the last quarter of 2002.

5-year euro swap rate
In the light of the benign inflation outlook, Coll says that longer-term euro rates are likely to continue to move lower, with five year swap rates likely to reach 4.70 per cent in the next 3 months.

Dunne says that sterling is now beginning to look comfortable above 0.64 and expects a rate of 0.66 by year-end. O’Neill expects that the euro will reverse its recent gains in the months ahead, and says that it is likely that EUR/STG will return to lower levels medium term.

Kiernan says that concerns over the robustness of the economy and the persistence of the current account deficit have weighed on the US currency and allowed many commentators to dust off their dollar crash pieces of a few years ago. While there may be some decline in relative attractiveness, he believes that throughout this year, the US will be growing faster than Eurozone. Nonetheless he says that current momentum is away from the Greenback, and sees the exchange rate rising to .98 over the next 3-6 months, but doesn’t see a dollar crash. O’Neill anticipates that the euro will continue to gain ground, with 0.96 now in the sights, and he expects the dollar to remain on the back foot near term. Dunne says that the rise of the euro has surprised him and he has revised his year end forecasts upwards, now calling for 0.96 by year-end, but given the pace of the rally to 0.95, he thinks that a period of consolidation during the quiet trading months of the summer is inevitable. He says we’re extremely unlikely to see parity this year, but ultimately it is on the cards, perhaps by end of 2003.

Jordan says that the index is in trouble and that the decline from the 10673 high looks like the start of a new bear market, which will last for some time to come. He says that under 10000 now opens up 9000 and then a return to the September 2001 low of 8006. Further out, much lower levels are likely he says.

10-year euro bond yield
Jordan says the current move in yield is viewed as temporary with a downside target of 5/4.95 before basing occurs. Looking then for a new rally to unfold towards 5.45 and then 5.75 above there.

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