Deutsche Bank made best end-2011 FX call

Deutsche Bank's call last January in the Reuters monthly foreign exchange poll that the euro and yen would both remain strong earned the bank most accurate forecaster for the long view. They have started this year with almost the same call, expecting the euro to ease over the first six months but recoup its losses in the second half and end the year with modest gains.
One year ago, Bilal Hafeez, global head of FX strategy at Deutsche Bank had forecast the euro to end-2011 at $1.30 as he expected the sovereign debt crisis to ramble on, but thought policymakers would devise some solution.
Politicians and policymakers are still scrambling to find a lasting fix for the crisis, with AAA sovereign ratings for key euro zone countries now hanging in the balance, but his call still turned out to be right.
"We then came up with our view on the euro that first half would see euro strength and second half euro weakness and you would end up roughly where we were at the beginning of the year," said Hafeez.
The euro closed at $1.2945 on December 30, the last trading day of the year, down about 3 percent on the year.
Hafeez had forecast sterling at $1.53 and the dollar at 78.0 yen by the end of December compared with the actual closes of $1.5535 and 76.94 yen respectively.
He said that the current economic situation is similar to the early 1990s when major economies had a period of weak growth after recession and low interest rates.
Back then, the US dollar was kept in a broad trading range against European currencies, and he thinks the same will apply to the euro's outlook for this year.
"We are in a similar environment today. We have the European Central Bank at low rates and cutting, UK, Japan and the US at low rates and everyone has their own different issues," Hafeez added.
"Like last year or the last few years ... we'll have weakness in the euro in the first half and euro strength in the second half which would reflect more dollar weakness than anything else."
Financial markets will continue to speculate on all possible outcomes of the current crisis, which will leave the euro in a volatile trading range this year.