Morgan Stanley, Calyon Diverge on Dollar-Euro Amid Volatility

Forecasters Stephen Jen and Mitul Kotecha agree that traders may have to get used to abrupt currency swings of the kind they saw last week, when the dollar had its biggest surge against the euro in nine months. They disagree on where the U.S. currency will end the year.

Morgan Stanley's Jen says the dollar will strengthen to $1.24 to the euro by Dec. 31 from $1.2645 now. Along the way, it will bounce wildly, falling below $1.30 before rising, he said. Kotecha, at Calyon, a unit of Credit Agricole SA, sees the dollar slumping to $1.35 per euro by year's end.

``We will be in a much more volatile environment in the second half,'' said 35-year-old Kotecha, Calyon's London-based head of global foreign-exchange strategy. ``The dollar won't fall in a straight line.''

The divergent forecasts show the difficulty of predicting currency moves at a time when Federal Reserve policy-makers have been changing their tone on the pace of interest rate increases. Thirty-two economists surveyed by Bloomberg on average predict the dollar will weaken by year's end to $1.30 per euro -- a level almost reached at the beginning of last week, when it touched $1.2980.

The U.S. currency then gained 2.1 percent against the euro, its biggest advance since August, to finish at $1.2650 as Fed officials makers signaled that they would keep raising rates to keep inflation in check. The central bankers' comments also helped trigger the biggest weekly slump in global stock markets in more than 3 1/2 years.

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