With rate spreads showing signs of exerting stronger influence, EUR/USD will stay under pressure. As the reaction to the lower LTRO repayment showed, lower euro zone short-term rates are leading increasingly to euro weakness. The 60-day correlation has strengthened to -0.89 (widening US-EZ yield spreads leading to a weaker EUR/USD), among the strongest levels over the past few years. Asia c.bank diversification into the euro is not as strong as it used to be, and the demise of risk-on/risk-off means that local macro factors (think JPY and GBP) are now the driving forces. With the euro zone stuck in recession and ECB needing to do more just as the Fed's hawks become more assertive, rate spreads are likely to keep favouring USD over EUR.
No comments:
Post a Comment