Euro’s Biggest Fan Loses Faith as HSBC Cuts Currency Forecast

HSBC Holdings Plc, until yesterday the most bullish forecaster for the euro, cut its year-end prediction for the 17-nation currency against the dollar, citing the pace of deterioration in the region’s debt crisis.

The bank forecasts the euro will strengthen about 9 percent to $1.35 by the end of 2012, strategists led by David Bloom, London-based global head of currency strategy said in a report. HSBC previously said the currency would climb to $1.44, the most highest among 57 financial companies’ estimates compiled by Bloomberg.

HSBC, which is the fifth-largest currency trader according to an annual survey by Euromoney Institutional Investor Plc (ERM), still predicts the euro will appreciate against the greenback this year, anticipating Greece will stay in the currency union.

“We also believe that European policymakers will adopt additional measures to shore up the rest of the periphery,” the report released today said. “The market will become more fixated with the weak state of U.S. government finances as we approach the U.S. presidential election later this year. This will encourage a reassessment of the dollar’s value.”

The euro strengthened 0.2 percent to $1.2385 at 2:53 p.m. London time, rebounding from $1.2358, the least since July 2010.

It will strengthen to $1.28 by year-end, according to the average estimate in the Bloomberg survey taken before HSBC cut its forecast. The predictions range from $1.10 to $1.39.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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May 31 (Bloomberg) -- Doug Dachille, chief executive officer of investment firm First Principles Capital Management LLC, and Stephen Wood, chief market strategist at Russell Investments, talk about the European debt crisis, the U.S. economy and the bond market. They speak with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)