Euro would need to reach $1.42 to spur ECB into action - Reuters poll

By Jonathan Cable and Sumanta Dey

LONDON/BANGALORE (Reuters) - The euro needs to reach $1.42 before the European Central Bank is spurred to act and weaken the currency, something the vast majority of strategists polled by Reuters also said is unlikely to happen.

Over the past year the euro has gained around 7 percent against the dollar, helping keep inflation dangerously low in the euro zone and prompting speculation ECB President Mario Draghi would be forced to combat it.

But according to the median in a poll of over 60 foreign exchange strategists taken in the past week, the euro, trading around $1.39 earlier on Wednesday, would need to climb another 2 percent to trigger any policy action.

Two strategists said the threshold was as high as $1.50, and several said it was $1.45. That is much higher than the $1.40 level suggested by a Reuters poll of euro money market traders taken last week.

"Nervous at $1.40; talking aggressively at $1.42 and action at $1.45," said Camilla Sutton at Scotiabank.

Still, the poll put the euro down at $1.38 in a month, $1.33 in six months and $1.29 in a year, little changed from a poll taken a month ago.

Only five of the 63 strategists polled said it would reach $1.42 at some point in the year-long forecast horizon.

Those forecasts highlight the reluctance analysts have in predicting the ECB will ease policy by either cutting its benchmark interest rates or through outright asset purchases.

Euro zone monetary policy is most likely to remain steady well into the future as a more broad-based recovery gains traction while inflation has probably already fallen as low as it will go, a Reuters poll last week found. [ECB/INT]

However, with inflation at just 0.7 percent last month, well below the ECB's 2 percent target ceiling, and tepid economic growth predicted at best in the coming year the central bank will be forced to keep monetary policy loose - or possibly to ease it further.

That contrasts with the U.S. Federal Reserve, which has been winding down its massive stimulus programme, and the Bank of England, which is widely touted as being the first of the big four central banks that will raise rates. [BOE/INT]

Both the ECB and BoE meet to discuss policy on Thursday.

CABLE FRAYS

With the BoE expected to begin raising interest rates from their record low of 0.25 percent around a year from now the euro will also weaken against sterling, the poll suggested.

One euro will be worth 82.1 pence in a month, 81.0p in six and 79.3p in a year, slightly less than in last month's poll.

Sterling rose to a near five-year high against the dollar on Tuesday after strong survey data showed Britain's dominant services industry was growing much faster than anticipated.

But while those gains will be short lived, the pound will only weaken slightly from Wednesday's $1.70 to $1.68 in a month and then dip to $1.65 in six months. A year from now one pound will be worth $1.64, according to the poll.

"Strong UK activity prospects, with the recovery broadening, together with the BoE's move towards a looser forward guidance policy underpin our bullish sterling view," wrote Anezka Christovova, strategist at Credit Suisse.

The safe-haven yen will also probably weaken this year, with median forecasts suggesting you will need 103 to buy one dollar in a month, 106 in a six months and 110 in a year, unchanged from last month's predictions.

To combat stubbornly low inflation and ramp up growth the Bank of Japan will probably add to its enormous stimulus package in July, knocking the yen. [ECILT/JP]

(Polling by Deepti Govind and Swati Chaturvedi Editing by Jeremy Gaunt)