Analysts of the Royal Bank of Scotland have predicted that the EUR will continue to fall.. By analysing the the high exposure of Western European banks to Eastern Europe they forsee that the EUR could lose another 10% in value, thus returning it to around 1.1400 USD by June. This would be the lowest level reached by the EUR against the USD in almost five years.

Although they are not as pessimistic as the RBS analysts from other major banks - including Société Générale, ABN-Amro and UBS - agree that the EUR will at the least fall to its low point of last November, at 1.2330 USD, within the next month.

Indeed, the warning issued on Monday by the credit rating agency Moody’s was something of a shock wave for the forex. As I have written elsewhere, the scenario of a sharp decline in the value of the EUR in coming months now seems inevitable as the countries of Western Europe are exposed to the economic recession that has plagued the PECO (a grouping of the old Communist countries of Central and Eastern Europe formed in the 1990’s and comprising Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Rumania, Slovenia, Slovakia, the Czech Republic, Belorussia, Ukraine, Russia, Slovenia, Croatia, Bosnia-Herzegovnia, Serbia, Kosovo, Montenegro, Macedonia, Albania, and Moldavia). According to Moody’s, this recession in Central and Eastern Europe is similar to the Asian crisis of 1997-1998, which does not bode well for the EUR.

Those countries in Western Europe which analysts of BIS (the Bank for International Settlements) predict will be the most affected are Austria, Germany and Italy, because each have a commmittment of about 220 billion euros in the East; and France, which has committed 155 billion euros in the region. In contrast, the U.S. and the U.K. will be largely unaffected by this situation – a significant fact which could result in a future rebound in the GBP on the foreign exchange market.

The USD should benefit from its safe haven status because, despite statistical disasters such as the 1.8% decline in industrial production and low 17% of building starts in January, the USD appears to be in good health, especially against the EUR.

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