5 Jan 2015
Political uncertainty to keep EUR under pressure – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, explains that political uncertainty and divergence in policies between Fed and ECB might keep the EUR pressurised, forecasting and year-end target of 1.15 for the EUR/USD pair.
Key Quotes
“Central Bank policy will not be the only driver of the EUR/USD exchange rate this year. European politics is likely to retain a fair share of the headlines with Portuguese and Spanish election later in the year and with the snap election in Greece on January 25.”
“The latest Greek opinion polls have put the far left Syriza party in the lead. Syriza has vowed to increase wages and the number of government employees and end the austerity that has been plaguing Greece for the past 4 or 5 years. This, however, is clearly not in step with the terms of the country’s bailout meaning that Syriza will be seeking debt forgiveness in order to remain within EMU.”
“Although the official stance of Chancellor Merkel is to maintain Greece within EMU, there has been some speculation that the reduction in EMU contagion risk resulting from a Greek exit from the system could limit Germany’s will to concede to Syriza’s demand and a Greece exit from EMU could result in 2015.“
“The structural reform in countries such as Ireland and Portugal and the return of growth to these countries has been described as a firewall against contagion. This firewall could weaken Syriza’s hand.”
“Political uncertainty is set to keep the pressure on the EUR in the weeks ahead and potentially for a longer period. Given also, the diverging policies of the ECB and the Fed, we have revised down our 12 mth EUR/USD forecast to 1.15.“
Key Quotes
“Central Bank policy will not be the only driver of the EUR/USD exchange rate this year. European politics is likely to retain a fair share of the headlines with Portuguese and Spanish election later in the year and with the snap election in Greece on January 25.”
“The latest Greek opinion polls have put the far left Syriza party in the lead. Syriza has vowed to increase wages and the number of government employees and end the austerity that has been plaguing Greece for the past 4 or 5 years. This, however, is clearly not in step with the terms of the country’s bailout meaning that Syriza will be seeking debt forgiveness in order to remain within EMU.”
“Although the official stance of Chancellor Merkel is to maintain Greece within EMU, there has been some speculation that the reduction in EMU contagion risk resulting from a Greek exit from the system could limit Germany’s will to concede to Syriza’s demand and a Greece exit from EMU could result in 2015.“
“The structural reform in countries such as Ireland and Portugal and the return of growth to these countries has been described as a firewall against contagion. This firewall could weaken Syriza’s hand.”
“Political uncertainty is set to keep the pressure on the EUR in the weeks ahead and potentially for a longer period. Given also, the diverging policies of the ECB and the Fed, we have revised down our 12 mth EUR/USD forecast to 1.15.“