By Lukanyo Mnyanda
Dec. 16 (Bloomberg) -- The dollar may drop about 5.5 percent against the euro in the next 12 months as the Federal Reserve cuts interest rates to revive the recession-mired economy, according to Goldman Sachs Group Inc.
The U.S. currency may decline to $1.45, Goldman Sachs analysts led by New York-based Jens Nordvig wrote in an e-mailed report today. Goldman Sachs’s previous forecast was for the euro at $1.30. The bank forecast the dollar will trade at 90 yen, compared with a previous prediction of 105 yen.
“Underlying negative dollar dynamics are again coming to the fore,” the analysts said in the research. “As we re-focus on normal dollar drivers, dollar weakness is likely to persist.”
The dollar traded at $1.3724 per euro at 1:40 p.m. in London, from $1.3688 yesterday, and earlier weakened to $1.3737, the lowest level since Oct. 14.
The U.S. currency was near the lowest level in 13 years against the yen on speculation the Fed will reduce the target rate for overnight loans to a record low today and announce plans to buy U.S. debt to push down Treasury yields. Futures on the Chicago Board of Trade showed a 68 percent chance the Fed will cut its 1 percent main rate to 0.25 percent.
“We are confident that the Fed will signal clearly that it is willing to deliver additional monetary accommodation as needed, including through quantitative measures,” the Goldman Sachs analysts said. European Central Bank President Jean-Claude Trichet said today there’s a limit to how far the bank can cut interest rates.
Goldman Sachs today reported its first quarterly loss as a public company.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
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