The euro will strengthen against the dollar in the coming months as investor focus moves to the U.S. and the potential for additional stimulus, according to Citigroup Inc. (C)’s Steven Englander.
“The euro is going to drift upwards,” Englander, head of Group of 10 currency strategy at Citigroup in New York, said today in a radio interview on “Bloomberg Surveillance,” with Tom Keene and Ken Prewitt. “As the market becomes convinced that Europe is determined not to allow the tail risk to be the dominant force in determining where the euro goes, focus is going to shift back to the U.S.”
European governments capped fresh rescue lending at 500 billion euros ($666 billion), after a Germany-led coalition opposed further expansion. Adding the 300 billion euros already committed to Greece, Ireland and Portugal, euro-area finance ministers put the total size of the firewall at 800 billion euros.
“However inelegant and clumsy the process has been,” Englander said, “the Europeans are showing that determination to hold the euro zone together and prevent the sovereign crisis from spiraling out of hand.”
The euro advanced 0.3 percent against the greenback to $1.3341 at 10:16 a.m. in New York. It has strengthened 2.3 percent against the dollar in the first quarter.
That the euro is trading as strong as it is “has to be viewed as something of a miracle,” he said. “We have been through so many ups and downs, the euro should have died 10 times by now.”
The euro has been supported this week by Federal Reserve Chairman Ben S. Bernanke’s comments on March 26, according to Englander. Bernanke said that “continued accommodative policies” will be needed to see further improvement in the unemployment rate, increasing speculation of additional monetary stimulus.
The U.S. unemployment rate was 8.3 percent in February, down from 10 percent in December 2009. The rate is forecast to remain steady in March when figures are released April 6, according to 31 economists in a Bloomberg News survey.
“Bernanke’s comments this week suggested the economy isn’t quite as strong as the market was thinking going into the quarter-end,” Englander said. “The need for stimulus certainly seems to be upmost on his mind, and typically that is dollar negative.”
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