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Volatility to continue in forex markets, but currencies should trade in narrower ranges Back  
The euro’s rise against the dollar should come to a halt over 2005, with the dollar having more upside potential, but some degree of volatility will remain, the majority of economists responding to this month’s FINANCE forecasting survey predict.
The majority of economists predict that EUR/USD will trade in the $1.09 to $1.19 range by Q2 2005, with only one dissenter, Niall Dunne of Ulster Bank predicting that the euro will continue to strengthen over the coming year. He says that, ‘the dollar might yet have to weaken further to materially reduce the deficit on America’s current account’ and that, ‘the US is approaching other obstacles on the road to sustainable economic recovery, which may prove impassable without the artificial stimulus of a weak dollar’.

Alan McQuaid of Bloxham Stockbrokers says that the euro has ‘peaked’ against the dollar, and that it will likely slip back toward 1.10 against the dollar over the next 6-12 months.
On the EUR/STG front, the majority of the panelists predict that sterling will hold its own against the euro, with Dunne and Brendan Seaver of Bank of America taking the contrarian position and saying that the pound may fall against the euro in the medium-term with Seaver saying, ‘The overheating in the consumer and housing sectors poses significant risks to the UK growth profile going forward and this will come into play gradually in the medium term’.

Interest rates
In the last survey published in the September edition of FINANCE, the economists predicted that there would be a rate increase in the Eurozone by the end of 2004, but have readjusted their predictions this month, forecasting no rate rise until 2005.

Contributors to this month’s survey are: Niall Dunne, financial markets economist, Ulster Bank, Noel Griffin, head of treasury & investments, Bank of Scotland (Ireland), Eugene Kiernan, head of asset allocation, Irish Life Investment Managers, Oliver Mangan, chief bond economist, AIB Global Treasury, Dan McLoughlin, chief economist, Bank of Ireland, Alan McQuaid, chief economist, Bloxham Stockbrokers, Donal O’Mahony, global bond strategist, Davy Stockbrokers, Brendan Seaver, country treasurer, Bank of America.

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