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Friday, 19th April 2024
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After parity - where next for the dollar? Back  
Each month, the Finance Markets Panel, which consists of leading Irish market participants and analysts, provides 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, Barlcays Bank and Enda Coll, head of institutional treasury, Anglo Irish Bank.

Euro 1 month interbank rate
European short rates are likely to remain in the current range for some time says Kiernan, and says that it is looking like the back end of this year, if at all, that we would see rate hikes in the Eurozone. But rates should move up over the next 6-12 months and we may see this impact on longer dated interest rates in the current year he adds. Coll also thinks that the ECB will not raise interest rates until the last quarter of 2002 at the earliest .

5-year euro swap rate
Kiernan sticks to his view that rates at 5 years and longer will gradually be nudged upwards over the balance of the year as growth takes hold, and predicts the 5 year rate will be at 5 per cent in 3-6 months.

Until we see further developments in the UK and euro debate, Dunne expects it to hold close to the 0.64 range. Coll says that the recent strength of the euro against the dollar is likely to continue to drag the euro higher against sterling. Together with the occasional reference to sterling joining the EMU, he says we are likely to see the Euro trade between .6350 and .6650, with the possibility of EUR/GBP reaching .6700 in the next few months.

For the first time since February 2000, the euro has breached the key psychological parity level says Dunne and adds that the factors that have seen the dollar collapse by almost 13 per cent since the start of the year remain, and virtually none of them have been resolved. He forecasts a year-end rate of between 1.03 and 1.05 despite the fact that the market might try to push the dollar lower. Coll feels that there is a real risk that any further sell-off in the dollar could see the dollar slide turn into a destabilising rout, and given the current lack of confidence in the dollar, he would expect to see the EUR/USD touch 1.08 in the next three months. O’Neill says that the continuance of accounting related risk and concern that sustained stock market risk may hamper economic recovery suggests that the dollar will continue to weaken over the summer.

Jordan sees the Dow powering down towards the September 2001 low of 8065, but interim recovery attempts should hold below 9400 maximum. Further out he thinks a break of the 8065 low is likely which will then open up a new downside target of 7000. Coll says that the Dow is likely to continue to trade lower, but that it is worth noting that historically, June to September seem to be the months most associated with equity weakness.

10-year euro bond yield
Jordan says he is still waiting for a base to form here under 5.00, but that there is scope for overshoot down to 4.75 before finally basing and rallying once more.

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