With the euro facing one of the most pivotal months in its 13-year history, traders and strategists are more divided than at any time since 2011 over whether officials will be able to keep the currency from tumbling.
At about $1.26, the 17-nation euro is 3.3 percent above the $1.22 median year-end estimate of more than 50 analysts compiled by Bloomberg, after the gap expanded to 3.8 percent last week. The last time the euro exceeded the consensus by that much was in July 2011, and it tumbled 9.4 percent in the next 10 weeks.
While traders are optimistic that European Central Bank President Mario Draghi will bolster confidence in the euro with his plan to buy bonds of Spain and Italy, analysts said those same measures are more likely to debase the currency. After the ECB meets this week, Germany’s Constitutional Court will rule on the legality of a bailout fund, Greece’s institutional creditors will decide if the country merits access to aid that would help it stay in the European Union, and Dutch citizens get to vote on parties including a group that wants to exit the bloc.
“The ECB’s approach is obviously an easing approach,” Hans Redeker, head of currency strategy at Morgan Stanley in London, said in a telephone interview on Aug. 28. “The central bank is printing money and increasing the supply of euros, and this implies that the currency will stay weak.”

Rising Euro

Redeker said the euro will probably drop 5.6 percent to $1.19 by year-end. An advance to between $1.27 and $1.30 would provide a good level at which to sell, he said.
The euro rose 0.1 percent to $1.2603 at 10:32 a.m. London time after reaching $1.2638 on Aug. 31, the strongest level since July 2. Against a basket of developed market peers, Europe’s shared currency appreciated 0.4 percent last week, according to Bloomberg Correlation-Weighted Indexes, bringing the monthly gain for August to 1 percent, its first advance since March.
Not since July 26, 2011, when the difference was 5.6 U.S. cents, has the euro exceeded year-end 2012 estimates by as much as it did on Aug. 28. The currency declined from a close at $1.4511 that day to a low of $1.3146 on Oct 4. As recently as Aug. 2, traders were more bearish than strategists.
“The longer-term forces acting on the euro still suggest it is probably going to remain an underperformer,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said in a telephone interview on Aug. 29. “We are still looking at a euro-zone economy that is in recession, compared with the U.S., which is growing slowly.”

Diverging Economies

The euro may climb to as high as $1.30 in late October as Draghi’s bond-purchase program stabilizes Europe’s financial markets, and then depreciate to $1.20 in a year as investors focus more on the economic underperformance relative to the U.S. and the need for more economic stimulus to boost growth, said Bennenbroek, whose company was the most-accurate forecaster in a Bloomberg Rankings survey for the six quarters through June.
U.S. gross domestic product will expand 2.2 percent this year, according to the median of 79 estimates compiled by Bloomberg. The euro-area economy will contract 0.4 percent, a separate set of forecasts shows.
Draghi gave the currency a boost on July 26 when he said he would do “whatever it takes” to preserve the monetary union. He backed that up on Aug. 2, saying the central bank may buy short-maturity notes issued by euro-area nations, as long as the region’s bailout fund makes purchases directly from the countries’ treasuries and ties the aid to conditions.
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