Euro drops to 2006 lows as economists question efficacy of QE
The euro dropped as low as 1.1864 Sunday night, its lowest level since late 2006, as economists warned that even full-blown quantitative easing by the European Central Bank would not be enough to eliminate the risks posed by overly low growth and inflation.
In parallel, in a speech delivered on 2 January Greek Prime Minister Antonis Samaras warned that a victory by the left-wing party Syriza, at the snap elections which have been called for 25 January, could see the country abandon the single currency area.
Fanning worries in global capital markets a report which appeared over the weekend in Der Spiegel held that German Chancellor Angela Merkel was ready to accept a Greece’s exit from the euro-area.
The median estimate from 50 economists polled by Bloomberg was for the euro/dollar to finish the year at 1.18.
Nevertheless, the most bearish forecasters, such as at Barclays, were anticipating the euro/dollar would slide to as low as $1.07 over the coming year.
Acting as a backdrop, another poll from the Financial Times revealed that 26 out of 32 economists canvassed expected the ECB to embark on a massive programme of quantitative easing this year. However, they also believed that it would fail to revive the Eurozone economy.
In that same vein, speaking on Bloomberg TV on Monday morning RBS strategist Antonio Gallo warned that this year might see the Eurozone’s economic crisis mutate into a political one. The analyst added that the effects of QE would not go much further than asset markets.
As of 09:47 the single currency was bouncing back by 0.09% to reach 1.1958.