LONDON Oct 7 The euro's exchange rate against
the dollar will fall to $0.95 by 2017, taking the single
currency back below parity for the first time in more than a
decade, according to a report by Deutsche Bank.
The call by Germany's biggest bank, the world's second
largest currency trader, is the most aggressive yet from a major
investment house, the majority of whom have already turned
overwhelmingly bearish on the euro.
The report, arguing that rock bottom investment returns and
huge trade surpluses would drive a flood of capital out of
Europe, implies a further 25 percent depreciation of the euro.
The currency has already slumped 10 percent since May, when it
reached a two-and-a-half year high just under $1.40.
The consensus view among the major foreign exchange players
is that the euro will continue to slide over the next year but
it was last worth less than one dollar in 2002, the end of an
early stage crisis of confidence in the euro project.
Barclays has predicted the euro will fall to $1.10 in a
year's time and continue to fall thereafter. Goldman Sachs has
it at parity with the dollar in 2017.
Current account surpluses are generally seen as a positive
for currencies and many commentators have pointed to Germany's
huge overspill on trade as one of the key factors propping up
the euro in the first half of this year.
Deutsche's George Saravelos, however, said that instead it
would be that surplus, allied to the climate of ultra low
domestic growth, that would shrink returns on any investment in
Europe and so drive the euro lower.
"We expect Europe's huge excess savings combined with
aggressive ECB easing to lead to some of the largest capital
outflows in the history of financial markets," he wrote in the
note sent to clients late on Monday.
"At around 400 billion dollars each year, Europe's current
account surplus is bigger than China's in the 2000s. If
sustained, it would be the largest surplus ever generated in the
history of global financial markets. This matters," he wrote.
Saravelos said that by weakening the euro with asset
purchases, and keeping returns on bonds and savings in Europe at
very low levels, the European Central Bank would only add to the
pressure for capital to be sent abroad to earn.
"Euroglut means that as the world's biggest savers,
Europeans will drive international capital flow trends for the
rest of this decade," Saravelos said.
"Europe will become the 21st century's largest capital
exporter. The next few years will mark the beginning of very
large European purchases of foreign assets."
(Reporting by Patrick Graham, Editing by Jamie McGeever/Ruth