Euro to hit record lows next year, BBH says

Currency strategists at Brown Brothers Harriman, the New York-based private bank, have repeated their prediction that the euro will test its historic lows next year. The currency’s weakest point so far against the dollar was the $0.6444 level touched in February 1985.

What seems to scare investors in the euro is not the suspension in response to the current flow of refugees into Europe of the Schengen Agreement, which abolished many of the EU’s internal borders, enabling passport-free travel between countries. It is a National Front victory for the French presidency, which alone could tear Europe asunder, write Marc Chandler, global head of currency strategy at BBH, and his team.

“And when placed in a larger context, the changes in Europe over the next few years is particularly concerning. The changes could include the UK leaving the EU, a post-Merkel Germany, and perhaps Weidmann succeeding Draghi at the helm of the ECB,” they write.

Jens Weidmann is currently president of the German Bundesbank and a member of the governing council of the European Central Bank, headed by Mario Draghi.

Our bearish outlook for the euro is not predicated on this dystopian scenario, add Chandler and his team. Instead, their “expectation that before the Obama dollar rally is over, the euro will test its historic lows is based on the prolonged divergence of monetary policy and the magnitude of that divergence well into 2017,” they write.

The strength of the dollar since Barack Obama became US president in January 2009 has weakened the euro from around $1.40 to its current level close to $1.10.

Source: Thomson Reuters

“We recognised the conflicting capital flows and did not expect parity to be seen this year. We do expect to see it next year and anticipate the cyclical low in 2017 or 2018. We see the political considerations discussed here as additional weights on the single currency’s outlook,” write Chandler and his team.

Originally published here: http://news.markets/forex/euro-to-hit-record-lows-next-year-bbh-says-6554/