Euro to Keep Advancing, Yen to Drop Further, BNP Paribas Says

The euro may strengthen to $1.40 by the third quarter of this year, the highest level since 2011, as positive sentiment persists toward Europe’s 17-nation currency bloc, according to BNP Paribas SA.

The Paris-based bank said it expects “sustained” yen weakness this year, saying Japan’s prime minister will probably push successfully for a weaker currency, more monetary easing and budgetary expansion as he seeks to spur economic growth in the nation. The yen and euro outlooks were detailed in a client note by BNP currency strategists including Michael Sneyd and Steven Saywell in London and Vassili Serebriakov in New York.

“All of our measures of euro-zone stress support further gains, while European Central Bank data on portfolio flows signal a reversal of the 2012 declining trend back toward larger net inflows,” the strategists wrote.

The euro touched $1.3594 today in New York, the strongest level since June 2010, before trading at $1.3578. It last traded at $1.40 in October 2011. BNP previously forecast it would trade at $1.35 in the third quarter.

The shared currency will continue gaining as demand for European peripheral sovereign bonds increases and the U.S. Federal Reserve continues to weaken the greenback as it buys $85 billion of bonds a month under quantitative easing to fuel American economic growth, the strategists wrote.

Yen Decline

The yen will probably weaken to 95 per dollar in the first three months of 2013, they wrote, before strengthening to 85 per dollar by year-end. The Japanese currency will fall in the first quarter of 2014 to 92 as the Bank of Japan begins an open-ended asset-purchasing program designed to make the economy more competitive. BNP previously forecast the yen would trade at 83 per dollar by the end of the first quarter.

The yen has lost 13 percent against the dollar over the past three months, data compiled by Bloomberg show. It depreciated 0.5 percent today to 91.54 to the greenback and touched 91.59, the weakest level since June 2010.

“We expect sustained weakness in the yen because of Prime Minister Shinzo Abe’s aggressive policy changes,” the BNP analysts wrote.

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