Europe's largest asset manager is betting that the euro will fall to parity with the US dollar this year as the mounting threat of recession prevents the European Central Bank from lifting interest rates above zero.
Vincent Mortier, chief investment officer at Amundi, said he expected the ECB to prioritise keeping a lid on government borrowing costs over fighting inflation. Such a decision would leave the euro zone central bank even further behind the US Federal Reserve in fighting inflation and knock the euro to $1 for the first time since 2002, Mr Mortier said in an interview with the Financial Times.
“We are facing lower growth or probably a recession in the euro zone,” Mr Mortier said. “We see the euro at parity[with the dollar] in the next six months.”
The French asset manager, which oversees more than €2 trillion of assets, is sticking with wagers in its portfolios that profit from a weaker euro even after the common currency has slumped 10 per cent against the dollar over the past six months, according to Mr Mortier.
The euro has steadied near the five-year low of $1.047 reached in late April after a fall that came as markets geared up for a series of aggressive interest rate rises from the Fed.
The ECB is expected to follow suit, albeit more slowly, with opposition among some members of the central bank’s governing council to a July rate increase - the first since 2011 – softening in recent weeks amid soaring inflation.
However, markets are overestimating how far the ECB will be able to lift interest rates before it is stymied by a faltering economy and concerns about rising borrowing costs for some of the euro zone’s more indebted member states, Mr Mortier said.
He expects just two quarter-point rises later this year from the current record low of minus 0.5 per cent before the ECB stops. Money markets are currently pricing in at least three such increases in 2022 and a further rise to roughly 1.5 per cent by mid-2024.
The Fed, in comparison, has already lifted its policy rate by 0.75 percentage points so far this year to a range of 0.75 to 1 per cent. It is expected to continue tightening policy aggressively in the months to come. – Copyright The Financial Times Limited 2022