Rabobank Reduces Euro Versus Dollar Forecast on Weaker Growth

By Andrew MacAskill

Sept. 19 (Bloomberg) -- Rabobank International, the third- biggest Dutch bank, cut its year-end forecast for the euro against the dollar on expectations of weaker European economic growth.

The euro will end 2008 at $1.41, Jeremy Stretch, a senior currency strategist in London at Rabobank, said in an interview. The bank earlier predicted the common European currency would end the year at $1.43. The euro weakened today to $1.4212 as of 8:32 a.m. in London, from $1.4348 yesterday.

The European Commission said Sept. 10 the 15-nation euro economy will stagnate this quarter and lowered its full-year growth forecast to 1.3 percent from 1.7 percent. The commission signaled the 2009 outlook may also be cut.

``The issues of weak growth in the euro zone will increasingly come into play over the next few months and that will see euro-dollar trading down,'' Stretch said. This will occur ``even though we have a lot of uncertainty regarding the U.S. financial sector.''

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed yesterday moving troubled assets from the balance sheets of American financial companies into a new institution. The initiative, which may also insure money-market funds, is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression.

The Fed almost quadrupled the amount of dollars central banks can auction around the world yesterday to $247 billion in a coordinated bid to ease the crisis facing financial markets.

The euro will finish the year at $1.44, according to the median of 41 analyst estimates compiled by Bloomberg. The forecasts range from $1.35 by Commonwealth Bank of Australia to $1.57 at Barclays Plc.

Against the pound, the euro will probably weaken to 78.5 pence by year-end, Stretch said. That compares with an earlier Rabobank forecast of 80 pence and a median prediction of 81 pence from 32 analysts, according to a Bloomberg survey.

The euro today was little changed against the pound, trading at 78.97 pence, from 78.92 yesterday.

To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net