Euro seen remaining 'undervalued' by Standard Life on ECB policy

[EDINBURGH] The euro's almost 10 per cent slide against the dollar this year has pushed it to levels that are undervalued, and that's just how the European Central Bank wants it, according to Edinburgh's largest money manager.

"European authorities would prefer to have the euro trading below fair value for some time," according to Ken Dickson, investment director at Standard Life Investments Ltd, which managed about US$376 billion as of Dec 31.

"So we are not expecting the euro to claw back quickly just because it's undervalued."

The common currency has slid about 3.4 per cent since Executive Board member Benoit Coeure on May 18 said the central bank would increase its purchases of euro-area assets in May and June ahead of an expected trading lull in the summer, having risen 4.6 per cent in the month before.

The ECB "will be happy with a policy mix that kept the euro low, at least for the time being," Mr Dickson said in a phone interview last week.

The 19-member currency's 9.8 per cent drop against the dollar this year was caused also by the contrast between the ECB's extending stimulus and the policy of the Federal Reserve. The Fed is debating the timing of its first interest-rate increase since 2006. The euro dropped 0.6 per cent to US$1.0918 as of 9:15 am on Monday. Mr Dickson said fair value would be about US$1.24.

While economic data in the US lagged behind analysts' forecasts in the first quarter, there "have been some signs of late that the disappointment is coming to an end," Mr Dickson said. "The dollar has further to go on the upside."

BLOOMBERG