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All eyes on the US, which holds the key Back  
Currencies outlook
Aziz McMahon,
Treasury Economist, Ulster Bank Capital Markets

EUR/USD 1.00
EUR/GBP 0.64

Comment: The euro is set to be the best performing major currency in the first quarter of 2001 as the dollar and the yen nose-dive. The key issue is whether the current US slowdown is a temporary phenomenon that will be offset by lower oil prices, lower interest rates and a weaker dollar, or whether this really is the beginning of the mother of all hangovers following the 1990s consumer and investment binge. We favour the former scenario, chiefly because inflation is low so that the Fed can cut rates aggressively if needed, unlike the early 1980s. However, the risk of something more serious is real and the market will remain on tender hooks for some time to come. This is good news for EUR/USD. Our initial Q1 target of 0.95 is in the bag, and we now look for 1.00 by end Q1. Meanwhile, it’s sunset rather than sunrise in Japan with the JPY also likely to head south against the euro. EUR/JPY 115 is a realistic level for spring.

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