The euro just hit a 9-year low against the dollar, falling below $US1.20 for the first time since June 2010, followed by a drop below $US1.19, driving the single currency to its lowest in nine years.
The consensus from analysts at the end of 2014 was that the euro would end 2015 at $US1.18, but that now looks like it might already be too high. As of 8.45 a.m. GMT it’s at $US1.1966, down 0.31%.
The euro has dropped more than 14% since March, and analysts think it could go even further. Societe Generale are expecting a slide to just $US1.14, and Goldman Sachs are forecasting a fall to $US1.15. Either of those would send the euro to a 12-year low against the dollar, back to levels last seen late in 2003.
But some bullish analysts aren’t the only ones who could be looking back at their words with a little embarrassment. Here’s what Jens Weidmann, Bundesbank chief said about the strength of the euro in May, when it was still over $US1.35:
International investors are now more confident about the euro area. So capital is flowing in our direction, particularly into periphery countries. That has made the euro strong. But it is also having a positive effect in those countries: the sharp inflow of capital has pushed their capital market rates down to an all-time low. In the long term that is more decisive for their economies than the high exchange rate.
Those words look pretty outdated today, with the euro at its lowest level since 2006. In fact, Weidmann pretty much called the top.
The first European Central Bank meeting of the year is on the 22nd of January, followed by Greece’s election on the 25th. Analysts and investors are watching eagerly to see whether a major quantitative easing programme is announced at the former, and whether far-left Syriza win the latter, sparking a huge confrontation with Europe.
Over the weekend, German media reported that the government is softening its attitude on a potential Greek exit to the euro, so significant volatility can be expected for the euro in the next few weeks.