Selling Dollar Versus Euro ‘Makes Sense’ on Fed, Aviva Investors Says

The dollar will fall further against the euro as the Federal Reserve keeps monetary policy loose, and the end of its bond-purchase program won’t be enough to lift the currency, according to Aviva Investors.

The dollar “probably has room” to decline to $1.60, a level that previously made European policy makers uncomfortable, said Pierre Lequeux, London-based head of currency management at Aviva Investors, which oversees about $370 billion. The euro is being supported by emerging economies that continue to diversify their assets away from the dollar, he said.

“Investors will look beyond the end of QEII in June,” Lequeux said in an interview at a Euromoney conference in London, referring to the second round of so-called quantitative easing. “It still makes sense to short the dollar against the euro. The U.S. economy seems to have fundamental flaws.”

The dollar has dropped 9.5 percent against the euro this year, making it the worst performer against the common currency after the South African rand, even as some nations in the euro region are grappling with the sovereign-debt debt crisis.

Fed ChairmanBen S. Bernanke, who has kept the target rate for overnight loans between banks in a record low range of zero to 0.25 percent since December 2008, said last week that there will be no change for an “extended period.” The Federal Open Market Committee meets every six to eight weeks.

“The job market remains sluggish and the domestic activity is still slow,” Lequeux said. “The U.S. has some fiscal adjustments to do and that will affect growth. It’s hard for me to be bullish on the dollar.”

‘Political Commitment’

The European Central Bank boosted its main refinancing rate on April 7 to 1.25 percent from 1 percent to tame inflation expectations, and ECB President Jean-Claude Trichet signalled more increases may be on the way.

“There is a strong political commitment for the euro,” said Lequeux. “And there’s also support from currency diversification. That’s probably why the euro hasn’t fallen out of bed, despite the sovereign-debt crisis.”

The dollar fell 0.2 percent to $1.4796 per euro as of 1:20 p.m. in London. It dropped 0.5 percent to 80.80 yen.

Aviva Investors is a unit of Aviva Plc (AV/), Britain’s second- biggest insurer by market value. www,bloomberg.com