UBS was the most accurate forecaster in the September Reuters foreign exchange poll, predicting a weaker euro amid the debt crisis that is threatening to unleash substantial damage on the global economy.
UBS forecast the euro to end September at $1.40 and sterling at $1.60, compared with their actual respective closes of $1.338 - well below the lowest forecast - and $1.558 on September 30. That gave UBS 145 points out of a maximum possible 150 in the poll.
The raging debt crisis in the eurozone has prompted many central bank watchers and interest rate markets to price in an interest rate cut by the European Central Bank as early as this month, which may add to the pressure on the single currency. "If you factor in widespread market turmoil stemming from Greece and the eurozone concerns, that sort of environment is perfect for dollar strength," said Chris Walker, FX strategist at UBS.
"So our core view of dollar strength was really factored into those forecasts, and we looked for big moves down in the euro and sterling." The US dollar gained almost 7 percent on the euro in September alone as the Greek situation fuelled fears of the global economy entering into another recession. Greece's latest admission that it will miss its fiscal deficit target this year, despite ever deeper cost-cutting measures, has provoked a sharp sell-off in stock markets this week and raised new doubts over a planned second international bailout. Walker, who is bearish on the euro, sees the downtrend continuing with the euro trending closer to $1.20 in three months from now compared with a median of $1.33 from 58 strategists in a poll taken this week.
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