Europe euro predictions 2012

Indonesia stock info - Europe euro predictions 2012 ; Despite Europe having long-term issues, the fear of the eurozone breaking up is what drove the panic in the financial markets throughout 2011. The thought of the eurozone breaking up is undoubtedly worrying, and the systemic risk would be huge.

However, if the eurozone or parts of it were to be unwound, the market would first value the legacy currencies on exit and then the logistical nightmare of bringing in the new sovereign notes would follow later. Currencies such as the Greek drachma would weaken, but some currencies, such as the deutschmark, would strengthen.

It is for this reason that we will still see the euro into 2012 and beyond. Merkel has played a steady hand throughout, and once the 'fiscal compact’ is in place the European Financial Stability Facility and ultimately the European Central Bank as the lender of last resort will prove enough to allow stability to return.

However, the euro itself is overvalued, and austerity in Europe will bite into growth. As a result the outlook for 2012 is for a clear downward trend, with brief euphoric bounces.

We predict GBP/EUR to rise to trade above 1.20 in six months' time and test a more neutral valuation at 1.25 within 12 months.

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