Credit Suisse says euro set to drop with Draghi close to more QE

[BERLIN] Look for euro weakness next week, according to Credit Suisse Group AG.

That's because Mario Draghi, the European Central Bank president, is expected to signal further monetary easing by the central bank at its Oct 22 meeting in Malta, according to Credit Suisse, the top major currency forecaster for the four quarters ended June 30, according to Bloomberg rankings. The shared currency stalled last week after gaining for the previous two amid growing speculation that the US Federal Reserve won't increase interest rates any time soon.

"Our bearish euro-dollar view is predicated on the idea that the ECB will extend quantitative easing by year-end," said Matt Derr, a foreign-exchange strategist in New York at Credit Suisse. "We expect Draghi to verbally lay the groundwork for an extension of QE - but for the actual extension to occur at the bank's December meeting." The 19-nation currency was little changed US$1.1348 against the dollar this week in New York, after strengthening the two previous weeks. It fell 0.8 per cent to 135.58 yen.

Inflation data showed the euro area's consumer-price index slipped 0.1 per cent in September, undershooting the central bank's target and signaling more stimulus may be needed. That's where the ECB president comes in.

"Draghi's going to be very dovish, so I think in the next couple of weeks or so I could see euro-dollar down," said Lee Ferridge, the Boston-based head of macro strategy for North America at State Street Global Markets. Ferridge, however, sees the euro strengthening into year-end.

The euro was whipsawed last week by comments from ECB officials. The currency rose Oct 16 after executive board member Benoit Coeure said expectations of ECB policy were "just too high." The currency dropped Oct 15 when governing council member Ewald Nowotny said inflation is "clearly" missing the institution's goal.

Economists predict changes to the ECB's 1.1-trillion-euro (S$1.8 trillion) bond-buying programme, or quantitative easing, would come before any adjustment to more conventional monetary tools.

"There's a likelihood that we'll see a more dovish tone from Draghi - that could be factor that pushes the euro lower against the dollar," said Omer Esiner, chief market analyst at currency brokerage Commonwealth Foreign Exchange Inc in Washington.

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