The US dollar will remain in a chokehold over coming months, thanks to an easy monetary policy out of step with other central banks now fretting over inflation or battling against it, a Reuters poll showed.
The euro looks set to cling to most of its double-digit percent gains racked up against the dollar this year on expectations of more interest rate hikes in coming months from the European Central Bank - and none from the Federal Reserve.
Median forecasts from the poll had the euro at $1.48 by end-May, a little below where it was trading on Thursday, and $1.45 in three months.
The vast majority of contributors were markedly more negative on the dollar's prospects over the coming months, partly a reflection of where the spot rate has moved since the last poll as usual, but signalling a clear shift in sentiment.
That said, the majority of analysts polled also forecast the dollar to recover against the euro later in the year as the expected date of the first Fed rate hike approaches, currently pegged for the first quarter of 2012 at the earliest. "The view that interest rates will rise at a much faster pace in the eurozone than in the US should represent the main driver for EUR/USD over the coming quarters," said Roberto Mialich, foreign exchange strategist at UniCredit in Milan.
Increased speculation whether Greece may have to restructure its massive debt pile, timed just as a third euro zone member, Portugal, hammers out the terms of a bailout, so far remains a peripheral issue for the roaring single currency. Instead, the euro remains solidly underpinned by powerful economic growth in France and Germany. That has got ECB policymakers tasked with keeping inflation close to or below 2 percent worried about future price rises.
The ECB is expected to signal later on Thursday another hike as soon as next month after raising its benchmark rate 25 basis points to 1.25 percent in March. Demand from central banks has propped up the euro, which made an attempt to reach $1.50 on Wednesday but retreated to close at $1.4821. Twenty-two of 58 forecasters had the euro at $1.50 or higher somewhere in the forecast horizon, compared with only 7 of 66 in the April survey.
While the euro may look overvalued to some, particularly given three of its members have had to go cap in hand to seek international assistance to get their fiscal houses in order, investors have few reasons to bet on dollar strength.
The Fed still has weeks to go before it finishes off the second leg of its $2.3 trillion bond-purchase programme. Its own books are a sea of red, triggering last month the first outlook downgrade for the US sovereign rating in over 70 years.
Central banks in emerging markets have also shown signs of backing off the so-called currency wars as the Fed's QE programme nears an end. That suggests a green light for the global carry trade, where a cheap dollar is used to fund purchases of higher-yielding assets elsewhere around the globe.
And the US economic outlook, while much improved from the Great Recession, is moderating. First quarter growth was disappointingly weak for this stage of an economic recovery with so much stimulus behind it, at an annualised 1.8 percent.
The latest services purchasing managers' survey for April showed a collapse in new orders growth, with activity moderating significantly, coming far below consensus expectations. That suggests no improvement in the US growth outlook.
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