Euro to struggle versus dollar

The euro will lose ground against the dollar over the coming year as austerity measures in Europe counteract any benefit to the common currency from renewed US quantitative easing, a Reuters poll found on Wednesday.
The survey of around 60 foreign exchange strategists, taken this week ahead of an announcement by the Federal Reserve about its new asset purchase programme, showed the euro would be at $1.33 in a year's time.
The euro, trading at $1.40 on Wednesday, is seen hovering around that level for the next three months before weakening to $1.35 in six. In the October poll, the euro was seen at $1.36 in one month, $1.32 in six and $1.30 in a year.
The Fed is expected to say later on Wednesday that it will buy $80 billion to $100 billion worth of assets per month, resuming its quantitative easing (QE) programme to bolster the struggling US economy.
But US President Barack Obama faces a political gridlock following Tuesday's midterm elections which swept Republicans into control of the House of Representatives and poses a challenge as the country struggles to get out of the economic doldrums.
More QE, through which the Fed would buy mortgage-related and Treasury bonds, would be negative for the greenback because the purchases would be made with hundreds of billions more of newly created dollars.
But some analysts said the euro would lose ground against the dollar on fears about the poor fiscal situation and a growing divergence in recovery rates among eurozone members. The European Central Bank is expected to unwind its own loose monetary policy early next year, but the stimulus packages must be paid for and governments across the continent have introduced tough austerity measures including tax hikes and deep spending cuts to deal with the financial headache.
Worryingly for policymakers, recent data has shown there is a growing divergence in member states with a stronger recovery in Germany offsetting a downturn in peripheral states such as Greece and only a modest upturn in Ireland. The euro was seen worth 87.5 pence in a month, 85.7p in six and 84.5p in a year, that compares to respective 86.5p, 84.1p and 82.5p forecasts in last month's poll.
A recent Reuters poll predicted the Bank of England would increase its own quantitative easing programme next year, although it was a close call, which would provide some support to the common currency against the pound.