The dollar will remain weak against the euro and the single currency will end the year close to USD1.18, according to analysts at Ulster Bank. Niall Dunne said that while the euro has appreciated "too far too soon" and is likely to fall back temporarily as recent speculative trades unwind in the near term, the US wants a weaker dollar to ease its growing deficit and to prevent deflation from taking hold. "The US has for all intents and purposes abandoned the 'strong dollar' policy. If America wants a weaker dollar to boost its exports, America will get a weaker dollar," Dunne said in his monthly report.
"After speculators exit the market, both the dollar and the pound look set to remain weak against the single currency," he added. Commenting on the outlook for interest rates in the eurozone, Dunne said he believes further cuts are in the pipeline in the eurozone. The Federal Reserve might be warning of the dangers of deflation more vociferously than the European Central Bank (ECB), but Dunne said that deflation is as real a threat in Germany as it is in America and the ECB will have to cut rates further. //www.fxcentre.com/