Euro ‘to weaken’ in coming months

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Evaporating hopes for an economic recovery and last month’s botched bailout of Cyprus persuaded analysts to chop their outlook again for the euro over the coming months, a Reuters poll showed.

Although the median expectation of more than 60 analysts surveyed over the last few days shows the euro trading around its current levels near $1.28 (84p) over the next few months, further out, the poll shows the currency weakening to around $1.25.

Overall, forecasts for the euro were about 2 cents weaker compared with last month’s poll, which also reflected its roughly 6 per cent depreciation against the dollar since the start of February.

The poor state of the eurozone economy was the chief reason why the euro is expected to weaken further, with surveys on Tuesday showing a worsening manufacturing slump in the currency bloc.

The median outlook for the euro was the weakest since September last year, when European financial markets were in turmoil as speculation grew that Spain would soon need a banking sector bailout, which it eventually got in December.

“We expect eurozone fundamentals to deteriorate further. This, combined with outflow pressures, should keep the euro’s downward trend intact,” said Camilla Sutton, chief currency strategist at Scotiabank, Toronto.

Asked which currencies investors were most likely to buy at the expense of the euro following the Cyprus bailout, 22 who answered said the US dollar, with seven responses each for sterling and the Australian dollar.