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6 Sep 2013
Flash: EUR/USD weakness a sign of things to come? – BMO Capital Markets
FXstreet.com (Lisbon) - We’re taking the view that the EUR/USD weakness and general offered tone in the currency across pairs this morning in London is rather important, and that there may be more to this than divergence, suggests Greg Anderson at BMO Capital Markets.
Key quotes
However,” if the ECB is forced into more aggressive action in order to suppress EONIA rates and hit back at market pressures, you worry about the EUR; if market pressures continue to resist the language of the ECB and force rates up, then you also have to worry about the EUR. You can’t really cut the cake differently in terms of the overall outcome.”
“If there is one thing the surprising, persistent upward pressure on rates is ignoring at present, it’s how incredibly toxic these higher interest rates are for an enormous swathe of the European banking system. Economically speaking, the risk building here is that market pressures for higher rates sow the seeds of their own destruction; at some point, the data will no longer justify higher rates and some of that disappointment will be due to higher rates themselves.”
“Forthcoming EUR weakness is therefore very likely to be a mix of monetary policy and rates divergence, and a higher risk premium becoming embedded in the value of the EUR as well.”
Key quotes
However,” if the ECB is forced into more aggressive action in order to suppress EONIA rates and hit back at market pressures, you worry about the EUR; if market pressures continue to resist the language of the ECB and force rates up, then you also have to worry about the EUR. You can’t really cut the cake differently in terms of the overall outcome.”
“If there is one thing the surprising, persistent upward pressure on rates is ignoring at present, it’s how incredibly toxic these higher interest rates are for an enormous swathe of the European banking system. Economically speaking, the risk building here is that market pressures for higher rates sow the seeds of their own destruction; at some point, the data will no longer justify higher rates and some of that disappointment will be due to higher rates themselves.”
“Forthcoming EUR weakness is therefore very likely to be a mix of monetary policy and rates divergence, and a higher risk premium becoming embedded in the value of the EUR as well.”