mardi 7 avril 2015
SocGen's 4 Reasons Why The Euro Will Keep Falling
Posted on 17:36 by nice news
After the abysmal March payrolls last Friday, the EUR briefly spiked only to lose all of its gains over the next two several days and then some. And if SocGen is correct, the European currency has much more room to fall. The reasons are not new, recapping what is already widely known, however those wondering why the EURUSD just took out its low stops for the day, the following 4 reasons from SocGen's Patrick Legland should be a useful refresher why Euro parity may be coming faster than most think.
Reason 1: strong bond outflows set to continue
In Q1 15, the euro depreciated against all major currencies (JPY, GBP etc.). Having dropped sharply since May 2014 (-22%), the EUR/USD is now tracking relative yields more closely (see chart). With disappointing US economic data in Q1 – including nonfarm payrolls well below expectations last week (126k) – the EUR/USD could remain range-bound near term, as markets are pricing in a slower pace of rate hikes by the Fed. But the desynchronisation of central bank policies is a long-term theme, with euro rates expected to stay low, while US and UK rates should rise in the medium term. With eurozone yields stuck at extremely low levels, investors must reallocate their investments into higher-yielding assets, in part overseas. Given the large amount of maturing European principals and coupons to be reinvested in 2015 (c.€1.15trn), this could lead to strong outflows over the next quarters and weigh on the euro.
Reason 1: strong bond outflows set to continue
In Q1 15, the euro depreciated against all major currencies (JPY, GBP etc.). Having dropped sharply since May 2014 (-22%), the EUR/USD is now tracking relative yields more closely (see chart). With disappointing US economic data in Q1 – including nonfarm payrolls well below expectations last week (126k) – the EUR/USD could remain range-bound near term, as markets are pricing in a slower pace of rate hikes by the Fed. But the desynchronisation of central bank policies is a long-term theme, with euro rates expected to stay low, while US and UK rates should rise in the medium term. With eurozone yields stuck at extremely low levels, investors must reallocate their investments into higher-yielding assets, in part overseas. Given the large amount of maturing European principals and coupons to be reinvested in 2015 (c.€1.15trn), this could lead to strong outflows over the next quarters and weigh on the euro.
SocGen's 4 Reasons Why The Euro Will Keep Falling
Categories: SocGens 4 Reasons Why The Euro Will Keep Falling
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