British analysts expect significant drop in euro rate
Azerbaijan, Baku, April 22 / Trend, A. Badalova /
A significant drop is expected in the European currency amid ongoing financial problems in Europe, analysts of one of British leading consulting companies for economic research Capital Economics believe.
"We certainly would not rule out further near-term euro strength. But we are not ready to abandon the view that the euro-zone's problems must inevitably weigh on its currency in time.
Indeed, the higher the euro goes in the meantime, the deeper those problems - and the bigger the eventual drop in the currency - might be," the British analysts' report says.
The European currency rises compared to the U.S. dollar amid expectations of further increase of interest rates by the European Central Bank (ECB). At present, the dollar-to-euro rate is $1.4569.
The ECB raised interest rate by 0.25 basis points - to 1.25 percent at its last meeting on April 13. This week, the ECB's Governing Council member Nout Wellink said that the interest rate will rise to 1.75 percent by late 2011.
According to Capital Economics analysts, those comments not only supported existing expectations that the ECB will raise rates again but also prompted suggestions that it might do so as soon as June. This not surprisingly appeared to give the euro an extra nudge higher.
At the same time, the British analysts believe that, as long as the fiscal crisis rumbles on, the tide will eventually turn against the single currency.
According to analysts' forecasts, the dollar-to-euro rate will hit $1.3 in 2011, while it will be equal to the European currency in 2012.