Currencies | Sep 17 2009
By Chris Shaw
The demise of the US dollar has been a major story over the past
several months and the currency has performed accordingly, falling
against most of the other major currencies since the onset of the
global financial crisis.
The greenback is now approaching its record low against the euro of
1.4720 hit in December last year, which as Danske Bank notes is a far
cry from its estimate of long-term fair value for the
currency of something closer to 1.25.
It is trading at current levels without much complaint from European
finance ministers and without any strong market calls for a correction,
the group suggesting this is because the US currency is really about
where it should be given current US external imbalances and monetary
policy and existing sentiment in financial markets.
The trend of a weaker dollar relative to the euro should continue in
the group’s view and it expects a move beyond 1.50 in the New Year,
supported by the above economic factors, with debt levels in
particularly supporting dollar weakness given on its numbers government
debt will continue to rise at a faster pace than generally perceived in
the market.
The technical structure for the EUR/USD is also positive and the group
is targetting 1.5164 on such a basis, which together with its
fundamental analysis has caused Danske Bank to revise its estimates for
coming months. It now expects a EUR/USD rate of 1.52 in three months,
up from 1.45 previously, while its 6-month rate has been revised to
1.50 from 1.48 previously. There is no change to its 12-month forecast
of 1.45.
