The euro may tumble over the next three months to $1.16 as the sovereign-debt crisis forces the European Central Bank to keep borrowing costs low, according to Credit Suisse Group AG.
The last time the euro traded at that level was in November 2003, according to Bloomberg data. Credit Suisse previously forecast that the 16-nation currency would trade at $1.29. The euro will be at $1.25 by the end of the year, according to the median forecast of 42 economists in a Bloomberg survey.
“The euro is now a low-yielding currency suffering a deeper crisis of confidence than we expected, with little near- term outlook for support from interest-rate policy,” Credit Suisse strategists including Ray Farris in London and Daniel Katzive in New York wrote in a note to clients today. “We think that euro-dollar will need to trade to obviously cheap levels to generate sustained buying interest in the near term.”
Europe’s currency depreciated 1.4 percent to $1.2226 after reaching $1.2162, the lowest level since April 17, 2006.
Credit Suisse also changed its three-month forecast for the euro versus the Swiss franc.
Citing revised euro-dollar targets and the Swiss National Bank’s use of its currency as a monetary-policy tool, Credit Suisse said the euro will fall to a record 1.370 against the franc, compared with a previous forecast of 1.425.
“SNB interest rate policy seems constrained by the likelihood the ECB will keep its rate structure unchanged possibly through year-end,” the strategists wrote. “This implies franc appreciation will be the main vehicle to tighten Swiss monetary conditions.”
The strategists expect the SNB to raise rates “roughly in line” with the ECB early next year.
The franc climbed 0.1 percent to 1.4006 against the euro, from 1.4021 yesterday, when it reached 1.4003, the strongest level since the European currency’s 1999 debut. The franc depreciated 1 percent to 1.1425 against the dollar, from 1.1312.
Swiss policy makers kept the three-month Libor target rate at 0.25 percent at its quarterly assessment on March 11. The ECB held its main refinancing rate at a record low 1 percent at its May 6 meeting.