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A lot more pain to come for European currencies

Despite their precipitous fall against the dollar this year and last, we think the euro, sterling, and most other European currencies will weaken further over the next twelve month as the economic slowdown and the terms of trade shock that is hitting the region take their toll. We now expect some of the damage to Europe’s competitiveness to prove long-lasting and that a significant part of the necessary economic adjustment will come through nominal exchange rates.

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