(Reuters) – The European Central Bank can still weaken the euro but only by buying sovereign bonds of the 18 countries that use the single currency, according to a majority of foreign exchange strategists polled by Reuters.
The euro EUR= has already weakened 9 percent against the dollar since the start of this year with most of the fall coming after the ECB announced measures in September aimed at boosting inflation and growth, including purchases of secured debt.
The weaker euro and of other stimulus measures have so far failed to bump up inflation, which at 0.4 percent in October is less than a quarter of the ECB’s near 2 percent target. Many euro zone economies are already experiencing deflation.
The dollar has surged against every major currency in recent months as a solidifying economic recovery in the United States has stoked expectations the Federal Reserve will raise interest rates by the middle of next year. The Fed ended its long-running bond-buying program last week.
Wednesday’s poll saw the euro steadily weakening against the dollar over the next 12 months but respondents said it may not easily fall much further, especially if there is any moderation in the dollar’s rise, unless the ECB eases policy significantly. Buying government bonds is among the last options it has left.
Twenty-nine of 38 currency strategists who answered an extra question said the ECB could influence the euro on its own, independent of the Fed’s policy decisions.
“If the ECB is successful at expanding its balance sheet while that of the Fed stays the same or contracts, then it is in a position to influence the exchange rate of the euro,” said Colin Asher, senior economist at Mizuho Corporate Bank.
A Reuters poll last week showed the ECB must expand its balance sheet by 1 trillion euros, roughly the size of Mexico’s economy but a fraction of what the Fed printed over half a decade, to have an impact on inflation.