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These forecasters have some dire predictions for the euro

Put it this way – it’s a good time to be a US tourist in Europe.

WHILE MANY ANALYSTS are predicting the euro will soon be on par with the dollar, one forecaster has tipped the currency will hit a new low within a few years.

Robin Brooks, from Goldman Sachs, said he expected the euro would be worth only 80c against the US currency by the end of 2017.

On Friday the US investment bank dropped all its forecasts for the euro, predicting it would be trading at 95c in 12 months and 85c at the end of 2016.

If the currency bottoms out as expected, the currency will have almost halved in value against the US dollar since hitting nearly $1.60 in 2008.

This morning it was trading just above $1.05 after it briefly hit a new 12-year low yesterday.

Euro2 Source: Yahoo! Finance

Way below ‘fair value’

Brooks said Goldman Sachs expected the euro would “significantly undershoot” its expectation of fair value because of “diverging growth and monetary policy outlooks”.

“If anything, it seems to us that the market continues to play catch-­up with the strong dollar theme,” he said.

The bank put its rating of long-term “fair value” at $1.20 for the euro.

Goldman Source: Goldman Sachs

Last week Deutsche Bank analysts delivered what was, at the time, one of the most bearish predictions so far – that the euro would be down to 85c by 2017.

The currency has been on a steady downward march since a year ago on a series of interest-rate cuts from the European Central Bank.

That was followed more recently by expectations of the bank’s quantitative easing (QE) programme, which will lead to €1.1 trillion in newly-created money flooding onto markets.

Germany European Central Bank ECB president Mario Draghi Source: AP Photo/Michael Probst

A tale of two economies

All the ECB measures have been brought in an attempt to kickstart sluggish eurozone economies by making it cheaper to borrow money and creating cheaper exports against goods from countries like the US and UK.

Meanwhile, US officials have been tipped to raise interest rates as early as mid-year which will make the country a more attractive place for cash investors.

That could in turn cause a flood of money from Europe which would lift demand for the dollar and slash appetites for the euro, driving the value of the currency down.

The weak euro will be bad news for consumers because of the amount of imported goods that come from either the US and UK, or from other regions where they are traded in dollars.

But it should have a positive effect on Ireland’s export-driven economy, which was already the fastest growing in the eurozone last year.

GDP was 4.8% higher for the 12 months, nearly four times the region’s average.

READ: There are some major holes in Ireland’s renewable energy plans >

READ: ‘If things are so successful, why are people still leaving the country?’ >

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About the author:

Peter Bodkin  / Editor, Fora

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