DJ FOREX VIEW

Thu Jun 17 14:18:00 EDT 2010

Euro's Day In Sun Will Soon Darken, BNP

Forecasts
By Bradley Davis
A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)--The euro is enjoying a brief day in the sun as concerns over
sovereign debt ease, but the common currency will drop below parity with the dollar in 2011 as
stressed euro-zone nations enact belt-tightening programs, a major European bank said
Thursday.
BNP Paribas revised its forecasts for the euro Thursday, calling for the common currency to now
dip below parity in 2011; the bank had previously forecast the euro hitting $1.00 in the first
quarter of next year, but then had called for it to make a modest rebound.
Worsening issues of euro-zone sovereign debt, which investors worry could seriously infect the
region's financial system, have dragged the euro down about 14% against the dollar since the
start of 2010. The steep slide, accompanied by bouts of volatile trading, has wreaked havoc with
some strategists' forecasts, causing them to revise downward their predictions for the euro
multiple times.
A Dow Jones Newswires survey at the end of May had strategists at banks and foreign-exchange
houses calling for the euro to trade at $1.19 by the end of the year; a survey taken just six weeks
prior called for the euro to trade at $1.2775 by the end 2010.
BNP Paribas on Thursday left its end-of-year forecast unchanged at $1.08, and continued to call
for the euro to hit parity with the U.S. dollar in the first quarter of 2011.
But with a "significant deflationary shock" likely in peripheral Europe as growth slows in
countries, such as Greece, Spain and Portugal, that are enacting austerity plans to deal with
exploding deficits, the common currency will weaken to $0.98 in the second quarter of 2011 and
$0.97 in the third quarter.
"It does suit the euro zone very nicely," said Ian Stannard, currency strategist at BNP Paribas in
London, of a weaker common currency. "It helps to offset some of the negative implications" of
the austerity packages by making euro-zone exports cheaper.
The euro should tick back to parity with the dollar in the fourth quarter of 2011, according to the
bank's new forecast.
BNP's previous forecast, issued on May 7, called for the common currency to stage a modest
rebound from parity in 2011, hitting $1.10 by the end of that year.
Thursday afternoon, the euro traded at $1.2394 from $1.2311 late Wednesday, according to EBS
via CQG, with the common currency benefiting from improved investor sentiment after a
successful auction of Spanish government debt.
The euro's recent rebound comes after it hit last week its lowest level since March 2006, at
$1.1876.

Disclaimer
(This article is general financial information, not personalized investment advice, as it does not
consider the unique circumstances affecting an individual reader's decision to buy or sell a
specific security. Dow Jones does not warrant the accuracy, completeness or timeliness of the
information in this article, and any errors will not be made the basis for any claim against Dow
Jones. The author does not invest in the instruments or markets cited in this article.)