Monday, June 14, 2010

Euro to hit dollar parity in 2011: Analyst

The euro is set to sink to parity with the dollar in 2011 because of the slow pace of economic recovery in Europe, if it has not broken up by then, a consultancy predicted on Friday.

In a quarterly report on global economic prospects the London-based Centre for Economics and Business Research (CEBR) forecast that the European single currency would fall to parity against the US greenback next year.

The CEBR predicts that the Federal Reserve Bank will start to raise US interest rates in late 2010 in response to strengthening growth.

In contrast, it says, the European Central Bank "will remain hamstrung by the weakness of the European economy and will be forced to hold rates down."

CEBR chief executive Douglas McWilliams said the report was prepared on the assumption that the embattled euro would still exist a year from now, but he was pessimistic about the long-term prospects for the currency.

"It is almost inevitable that the euro will break up at some point," McWilliams said. "It could be soon, it might be in five to 10 years time." "In the meantime, the one certainty is that the euro will be weak," McWilliams said.

"It has already fallen by 30 cents against the dollar this year and will probably fall the final 20 cents to break parity when it becomes clear that US rates are about to rise while euro rates will be held down because of the weakness of the economy."

Report author Charles Davis said the global recovery was "surprisingly robust in the emerging markets while clear risks remain in the advanced economies," highlighting two main concerns.

"Overheating in the emerging markets will require monetary policy tightening and the fear that in some of the weaker economies in the Western world that growth will slow even further when fiscal stimuli are removed."

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