The euro will slide toward record lows as the gap between the rate outlook in Europe and the U.S. widens, according to Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co.
The 19-nation currency, which has fallen almost 10 percent versus the dollar this year, will tumble to “maybe a little bit below” 82.5 cents by the end of next year or 2017, Chandler said during a radio interview with Bloomberg Surveillance. Traders are again buying the dollar after a two-month selloff as the European Central Bank and the Federal Reserve commit to diverging monetary policies.
“A lot of people thought that might be the end of the big dollar rally but, to me, this is still the early days,” Chandler said Tuesday. “The divergence has not reached its peak yet and, because of that, I’m not sure the dollar has either.”
The dollar may rally as much as under Bill Clinton’s presidency, Chandler said. Then, the U.S. currency advanced 26 percent versus the euro, pushing the shared currency to as low as 82.3 cents in October 2000. The euro fell 0.9 percent to $1.0883 as of 12:32 p.m. in New York after touching $1.0869, its lowest in a month.
Chandler is more bearish on the euro than consensus. The currency will fall to $1.07 by Dec. 31 next year and trade at $1.15 by the end of 2017, according to the median forecast of analysts surveyed by Bloomberg News.
Brown Brothers joined strategists calling for the euro to fall to parity in January, when Chandler suggested the currency could weaken below $1 in 2016.
The Fed is making steady progress toward raising rates for the first time since 2006 as policy makers in Europe undertake unprecedented stimulus.
Higher rates in the U.S. will be “appropriate” this year provided the economy meets forecasts, Fed Chair Janet Yellen said Friday. That contrasts with Europe, where the ECB last week reiterated that it would maintain its program of quantitative easing through September 2016 and said it would speed up its program in May and June ahead of a seasonal lull in liquidity.
“The bull move is getting some traction again,” said Chandler.