After a bad year in 2000 and an even worse maiden 12 months, could the euro be on the verge of enjoying a year of strength? With so many sad (and painfully wrong) bulls, it is now rather hard to find any investor prepared to admit that he or she is hugely optimistic about the euro’s prospects. Although the currency now seems to be better positioned for a rally, for many that’s because it is coming from such a low base, and few managers believe that the euro will climb back to its launch level of 1.18 to the dollar.
After its truly awful first year, when the currency weakened against all the other majors, the euro managed to gain ground against both the yen and sterling in 2000. For 2001, many managers see a two-phase currency market. CCF’s Grimaud explains, “For the first half of the year we see the euro benefiting from the economic growth differential (between the US and Europe) turning positive in favour of Europe. This should reverse, or halt, the strong flows of monies into the US. However, come the latter half of the year when the US economy starts to pick up speed again, then the euro will lose much of its support, and the dollar should regain its strength.”
Of the major currencies, it was the yen that took the prize for weakness last year, and, according to many managers looks well positioned to hold on to that ‘trophy’ in 2001. Alan Higgins of ABN Amro Asset Management believes that the Japanese currency might be the ‘easiest’ to read. He adds, “We are actually basically neutral on dollar/euro and find it quite hard to take a big position either way. We do have more of a position against the yen, however.”
Julius Baer’s Philip Mann agrees, adding: “I just cannot get in the slightest bit bullish about Japan. The economy looks set to fall back further – monetary policy is already very loose. The currency may well take that extra strain. So the euro’s our favoured currency right now, but for the short to medium term only – we are going for parity by the end of March. However, we favour the two-phase market, and as soon as the US economy turns more favourable the US currency will find support, at the expense of the euro once more.”