Euro to slide back after April's ascent versus dollar: Reuters poll

LONDON Wed May 8, 2013 12:31pm EDT

The Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt April 4, 2013. REUTERS/Lisi Niesner

The Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt April 4, 2013.

Credit: Reuters/Lisi Niesner

LONDON (Reuters) - The euro's ascent in April against the dollar will not last, according to a Reuters poll of foreign exchange strategists who see the parlous state of Europe's economies undermining the currency.

The euro strengthened around 2 percent against the dollar in April, largely because of shaky economic data from the United States that cemented expectations monetary stimulus there had further to run.

But with growing expectations the European Central Bank will take further action to stimulate the recession-hit euro zone economies - even after just cutting rates - the more than 60 foreign exchange strategists polled this week saw little upside for the region's currency.

Although Wednesday's poll showed the euro holding around $1.30 in a month's time, just shy of its Wednesday trading level around $1.31, it is expected to weaken over the next year - to $1.28 in three months, and $1.24 in 12.

"ECB President (Mario) Draghi took the wind out of the euro's sails as he highlighted the possibility of further policy easing," said Mitul Kotecha, head of global FX strategy at Credit Agricole, in a research note.

Draghi departed from a prepared speech on Monday to reiterate the central bank's readiness to cut interest rates again if the euro zone economy deteriorates further.

The ECB cut its main interest rate to 0.5 percent last week after euro zone inflation fell sharply in April and unemployment hit a record high in March. It signaled then that it was ready to do more should the euro zone economy deteriorate further.

Another cut could drive the deposit rate below its current level of zero.

"As Draghi noted prospects for further easing will be highly data dependent, which in turn means that the euro will be more data sensitive in the weeks ahead," said Kotecha. "The prospects of negative deposit rates in particular will continue to send shivers down the spines of euro bulls."

The poll was slightly at odds with the latest data from the U.S. Commodity Futures Trading Commission last week, which showed investors broadly took more long positions for euro.

The poll's range of forecasts for the euro has narrowed across one-, three- and six-month time horizons since January, as analysts seem more sure footed on the euro, with risks from the Cyprus bailout and Italian election largely settled.

Against sterling, the euro is expected to hover around 84-85 pence over the next year.

(For other stories from the poll see [ID:nL3N0DP1Y5]) (Reporting by Andy Bruce, Polling and analysis by Namrata Anchan and Somya Gupta Editing by Jeremy Gaunt.)

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