Bloomberg News

Euro Will Stay Above $1.30 on Central-Bank Buying, FxPro Says

September 20, 2011

Sept. 20 (Bloomberg) -- The euro is likely to stay stronger than $1.30 this year as central banks and sovereign-wealth funds seeking an alternative to the dollar keep buying the shared currency, according to FxPro Group Ltd.

The 17-nation euro will trade between $1.30 and $1.40 for the rest of 2011 as buyers led by the Swiss National Bank and its Asian counterparts purchase assets denominated in the currency as a substitute for the greenback, said Michael Derks, chief strategist at the foreign-exchange broker in London.

“There are just too many natural buyers of euro who are keen to hoover it up at these cheaper levels to push it dramatically weaker,” Derks said in a telephone interview. “The central banks and sovereign-wealth funds have very deep pockets so I don’t see where the selling pressure on the euro is going to come from.”

The euro traded at $1.3707 at 8:31 a.m. in New York, after falling to $1.3495 on Sept. 12, the weakest level since Feb. 16.

Concern Greece will default on its debt as Europe’s fiscal crisis worsens has pushed the euro to a 10-year low against the yen and seen it lose 4.6 percent this month against the dollar. Even so, the euro has weakened just 1.6 percent in the past 12 months against a basket of its nine developed-market peers, according to Bloomberg Correlation-Weighted Currency Indexes.

“I do appreciate that the euro is facing great difficulty, but if you look at the price action, the pain it has suffered is meager in light of the events that have unfolded,” Derks said. “It has been remarkably resilient.”

Franc Ceiling

Switzerland’s central bank said it will buy “unlimited quantities” of foreign currencies including the euro to stop the franc from strengthening. The SNB imposed a ceiling of 1.20 francs per euro on Sept. 6 to protect exporters such as food maker Nestle SA and limit an economic slowdown.

China’s government and other Asian investors may purchase bonds issued by the European Financial Stability Facility to bail out indebted euro-area nations, the Financial Times reported in May. The newspaper said this month Italy may sell bonds and strategic assets to China in an attempt to shake off its fiscal debt burden.

China is the world’s biggest holder of foreign-exchange reserves and the largest overseas investor in U.S. debt, with holdings of $1.174 trillion, according to Treasury data. Officials including People’s Bank of China adviser Li Daokui have urged diversification of the nation’s currency reserves away from the U.S. dollar

“There’s too much financial interest in the euro from investors who want to diversify away from the dollar,” Derks said. “I don’t see how a dominant seller can emerge in that environment.”

Japanese Prime Minister Yoshihiko Noda said his nation may buy more bonds issued by Europe’s bailout fund provided the region’s leaders reach a consensus on how to deal with the sovereign-debt crisis, the Wall Street Journal reported today, citing an interview.

--Editors: Nicholas Reynolds, Mark McCord

To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net

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


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