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By Jamie McGeever
LONDON, March 23 Barclays became the latest big bank to back off its forecast for the euro to fall below parity with the dollar, saying on Thursday that it now sees the single currency falling to as low as $1.03 this year before gradually recovering.
Currency analysts at the world's sixth biggest foreign exchange trading bank said the political risk from a series of elections in Europe has ebbed, and that the European Central Bank will move to normalize its ultra-loose monetary policy quicker than previously anticipated.
The dollar, meanwhile, is unlikely to get much more of a lift from U.S. policy. The Federal Reserve will be less aggressive in raising interest rates than previously thought, and president Donald Trump's fiscal plans won't come to fruition until next year.
"Politics will be less of a downward force than we initially thought, and the ECB is a bit more comfortable in normalizing policy," said Hamish Pepper, an FX strategist at Barclays.
"We're probably dealing with a slightly less hawkish Fed in the near term, and U.S. fiscal policy could be delayed," he said.
He and his colleagues had previously penciled in a decline for the euro to $0.99 by the end of this year.
This is the latest in a series of euro forecast changes by many of the world's big banks. Earlier this week Citi, the world's biggest FX trading bank, raised its target for the euro over the next six months to $1.04 from $0.98.
Deutsche Bank, the world's fourth largest FX trader, last week pushed out its timetable for a fall to $0.95 for the euro, while other dollar bulls including Bank of America Merrill Lynch, BNP Paribas and Goldman Sachs are at $1 or above.
Financial markets now put a 60 percent chance that the ECB will raise its deposit rate by 10 basis points in December. The deposit rate is currently -0.4 percent, and has been below zero for almost three years.
Meanwhile, although the Fed raised U.S. rates earlier this month, investors are skeptical growth and inflation will be strong enough to warrant many more hikes. Benchmark 10-year U.S. bond yields have fallen around 20 basis points since that rate hike, and the dollar hit a six-week low on Wednesday.
"The bigger picture here is, we're calling the top in the dollar," Pepper said. (Reporting by Jamie McGeever; Editing by Toby Chopra)