Euro would need to reach $1.42 to spur ECB into action

LONDON/BANGALORE: The euro needs to reach $1.42 before the European Central Bank is spurred to act and weaken the currency, something the vast majority of strategists polled by Reuters also said is unlikely to happen.

Over the past year the euro has gained around 7 percent against the dollar, helping keep inflation dangerously low in the euro zone and prompting speculation ECB President Mario Draghi would be forced to combat it.

But according to the median in a poll of over 60 foreign exchange strategists taken in the past week, the euro, trading around $1.39 earlier on Wednesday, would need to climb another 2 percent to trigger any policy action.

Two strategists said the threshold was as high as $1.50, and several said it was $1.45. That is much higher than the $1.40 level suggested by a Reuters poll of euro money market traders taken last week.

"Nervous at $1.40; talking aggressively at $1.42 and action at $1.45," said Camilla Sutton at Scotiabank.

Still, the poll put the euro down at $1.38 in a month, $1.33 in six months and $1.29 in a year, little changed from a poll taken a month ago.

Only five of the 63 strategists polled said it would reach $1.42 at some point in the year-long forecast horizon.

Those forecasts highlight the reluctance analysts have in predicting the ECB will ease policy by either cutting its benchmark interest rates or through outright asset purchases.

Euro zone monetary policy is most likely to remain steady well into the future as a more broad-based recovery gains traction while inflation has probably already fallen as low as it will go, a Reuters poll last week found.

However, with inflation at just 0.7 percent last month, well below the ECB's 2 percent target ceiling, and tepid economic growth predicted at best in the coming year the central bank will be forced to keep monetary policy loose - or possibly to ease it further.

That contrasts with the U.S. Federal Reserve, which has been winding down its massive stimulus programme, and the Bank of England, which is widely touted as being the first of the big four central banks that will raise rates.

Both the ECB and BoE meet to discuss policy on Thursday.