Barclays Plc Says Improving U.S. Economy Will Support Dollar Versus Euro

Barclays Plc expects the U.S. economic recovery to gain momentum, which will support the dollar against the euro.

The firm raised its one-month forecast for the greenback to $1.27 per euro, which is 2.7 percent lower than today’s level of $1.3056, yet stronger than its previous estimate of $1.20. The firm’s three-month forecast was revised to $1.25 from $1.20. The dollar will fare better versus the euro as U.S. economic data begin to improve, Paul Robinson, a currency strategist at Barclays in London, wrote in a note to clients.

“We do not expect the recent run of bad news on the U.S. economy to persist,” Robinson wrote. “Prospects for the U.S. economy are somewhat better than has currently been factored in.”

The dollar rose 0.2 percent to $1.3056 per euro at 3:18 p.m. in New York. The greenback was poised to post its first monthly decline against the shared currency in eight months, dropping 6.3 percent.

The U.S. economy grew at a 2.4 percent annual rate in the second quarter after a revised 3.7 percent increase in the first three months of the year, the Commerce Department reported today. The median forecast of 81 economists in a Bloomberg News survey was for a gain of 2.6 percent.

“U.S. data have mostly been weaker than the market expected, but surprisingly positive in Europe,” Robinson wrote.

Political Risks

An index of executive and consumer sentiment in the euro nations increased this month to 101.3, the highest level since March 2008, the European Commission said July 29.

Political risks in both the euro zone and the U.S. could threaten the currencies, Robinson wrote. European countries face the challenge of implementing austerity packages, which will “take years” to stabilize peripheral countries’ fiscal positions, and investors in the U.S. may become more cautious as mid-term elections approach, he wrote.

Barclays also adjusted its forecast for the yen, estimating the Japanese currency will fall to 90 versus the dollar in the next month, compared with a previous forecast of 92, as speculation about Federal Reserve efforts to keep interest rates low weigh on Treasury yields and the dollar. The one-year estimate stayed at 98.

The greenback fell 0.5 percent to 86.39 yen after touching a level below 86 yen for the first time this year.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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