By Candice Zachariahs
Sept. 9 (Bloomberg) -- Gains in the euro may be limited after it climbed to a nine-month high against the greenback as a weak euro-region recovery prevents the European Central Bank from “aggressively” raising interest rates, Barclays Capital said.
The bank advised investors to buy options betting demand for the single currency will abate as it rises toward $1.52. Investors may benefit by purchasing the right to buy the euro at $1.4150 in three months with a so-called reverse-knock-out at $1.52, said analysts led by David Woo, global head of foreign- exchange strategy at Barclays Capital in London.
“With the euro having hit $1.45, we see the remaining upside as limited,” the analysts wrote in a note to clients yesterday. “The headwinds are likely to be greater the further up the euro moves.”
The euro traded at $1.4514 at 10:08 a.m. in Tokyo from $1.4478 in New York yesterday, when it reached $1.4535, the highest level since Dec. 18. It has gained 2.2 percent over the past month.
A reverse knock-out clause would render the option worthless if the currency gained to more than $1.52. The median forecast of 45 financial institutions surveyed by Bloomberg News is for the euro to end the year at $1.42.
“While the U.S. dollar outlook remains negative, the euro is the beneficiary by default, rather than justice,” the analysts wrote. “Eurozone two-year note yields are trading close to their lows, suggesting that the pace of recovery is not sufficient for investors to expect the ECB to raise rates aggressively.”
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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