Euro Stuck in Range Without Fed Action, Russell Investments Says

  • Shared currency mostly traded from $1.10-$1.15 since February
  • Traders see 35% probability of Fed rate increase by December

The euro, stuck in a 10-U.S. cent trading range for much of this year, can’t escape its bounds without a clear interest-rate trajectory from the Federal Reserve, according to Russell Investments, which oversees about $266 billion.

“To break out of that trading range in either direction we need a significant change in the story, either around the European Central Bank or the Fed,” Wouter Sturkenboom, senior investment strategist at the company, said in an interview in London. “The Fed needs to move in December and establish what we think is an every-other-meeting rate-hike schedule. Then we think we should definitely be pushing down to $1.05 or maybe even to parity.”

The 19-member currency has mostly stayed in a range of $1.05 to $1.15 since mid-February, only breaking out briefly in late August amid a global rout in commodity and stocks. It dropped from as high as $1.3993 in May 2014 as the ECB started an unprecedented 1.1 trillion euros ($1.2 trillion) of asset purchases to stimulate the region’s economy, and was at $1.1208 as of 11:12 a.m. London time on Tuesday.

Volatility matters in the $5.3 trillion-a-day foreign-exchange market. Small price swings mean less opportunity for traders to make money, and the industry has been stung by record-low gyrations that have claimed some of the industry’s highest-profile scalps. FX Concepts LLC, once the world’s largest currency hedge fund, shuttered its investment-management business in 2013.

There’s a “not insignificant” chance that the Fed will delay any rate increase until 2016, which would likely push the euro back toward $1.15, Sturkenboom said.

Traders are pricing in a 35 percent probability that the U.S. central bank will raise its target rate by December, according to futures data compiled by Bloomberg. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff, compared with the current zero-to-0.25-percent target range.

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