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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
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
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)