Euro May Slide to $1.26 as Interest Rates Ease, Citigroup Says

By Candice Zachariahs

Oct. 21 (Bloomberg) -- Investors should sell the euro versus the dollar because the European Central Bank is likely to cut its benchmark rate toward 2.5 percent as oil prices fall and growth slows, Citigroup Global Markets Inc. said.

``We believe that there is potentially a perfect storm building against the euro,'' wrote Tom Fitzpatrick, New York- based global currency head of strategy at Citigroup Global Markets, in a research note yesterday. The currency may fall to ``at least $1.28 by year-end and maybe even continue lower in 2009.''

Citigroup recommends investors sell the currency at $1.3314 per euro, with a ``minimum target'' of between $1.26 and 1.28. Investors should exit the bet if the euro strengthens to $1.3476, wrote Fitzpatrick. The euro traded at $1.3331 at 7:07 a.m. in Tokyo from 1.3344 yesterday. It reached a 19-month low of $1.3259 on Oct. 10.

The ECB's target rate of 3.75 percent is ``way too tight in Europe even under a misguided single mandate,'' Fitzpatrick wrote in a separate note dated Oct. 17. The benchmark rate is 1.5 percent in the U.S. and 0.5 percent in Japan.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net