- Company predicts ECB will extend stimulus into mid-2017
- ECB officials including Draghi, Praet due to speak this week
Goldman Sachs Group Inc. says the euro may fall up to 10 U.S. cents as the European Central Bank is set to increase currency-weakening stimulus to meet its inflation target.
The investment bank predicts the ECB will maintain quantitative easing at its current pace of 60 billion euros ($68 billion) a month through the end of 2016, an extension of the plan that was intended to run until September 2016, and only end it completely in mid-2017.
“This represents a material upsizing of the original program and should weigh on the single currency,” Goldman Sachs analysts, including Robin Brooks, chief currency strategist in New York, wrote in a report dated Sept. 20. “Depending on how credible an upsizing to ECB QE is, we therefore see scope for euro to fall between six and 10 big figures,” they wrote, referring to a drop of six to 10 cents.
The shared currency fell 0.6 percent to $1.1233 as of 10:07 a.m. New York time after slumping 1.2 percent on Sept. 18, the biggest decline since Aug. 26. The euro rose 0.2 percent to 135.26 yen. The dollar strengthened 0.3 percent to 120.39 yen. Japanese financial markets are shut for holidays from Monday through Wednesday.
Hedge funds and other money managers boosted net bearish bets on the euro for the third week in the period ended Sept. 15 to 84,202 contracts from 81,241, according to data from the Commodity Futures Trading Commission.
The euro slid on Friday as Benoit Coeure, an ECB Executive Board member, said that U.S. and Europe’s policy trajectories will “remain very different.” Coeure and Executive Board member Peter Praet are scheduled to speak on Monday, followed by ECB President Mario Draghi taking part in a European Parliament hearing in Brussels on Wednesday.
The Federal Reserve kept interest rates unchanged at a policy meeting last week, though Chair Janet Yellen said most officials still expect to tighten borrowing costs this year. Fed Bank of San Francisco President John Williams said on Sept. 19 that the decision was a close one.
Coeure’s comments suggested “the Fed reaction was a tactical pause and that the ECB stands ready to do more,” said Sam Tuck, senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “Euro-dollar will be under pressure on those sort of fundamentals.”
The euro has strengthened 3.4 percent in the past three months, the third best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the best, rising 6.8 percent, and the dollar appreciated 4.6 percent.