10 Mar 2015
Declining yields dragging euro lower – BTMU
FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, notes that the falling eurozone yields have been dragging EUR/USD lower, with ECB’s QE offsetting the impact of the strengthening economy, and further anticipates the pair to head to towards parity on a 6M-12M view.
Key Quotes
“The euro has continued to weaken early this week which has coincided with the ECB beginning government bond purchases yesterday.”
“Yields spreads between overseas and the euro-zone continue to move against the euro. The 10-year German government bond yield declined sharply yesterday by 8 basis points. As a result the 10-year yield spread between the US and German government bonds widened to a new record high and is moving closer to almost 2 percentage points. It is the result of the significant divergence both in economic performance between the US and euro-zone economies and monetary policies between the Fed and ECB.”
“The recent pick-up in market-based inflation expectations has also resulted in real yields in the euro-zone falling more sharply further undermining the euro. The recent modest rebound in market-based inflation expectations in the euro-zone is another encouraging sign that the ECB’s aggressive easing is at least initially proving successful.”
“Even the recent strengthening of cyclical momentum in the euro-zone has failed to lift euro-zone yields and the euro, whose positive impact has been offset by the ECB’s aggressive easing.”
“It appears likely that the divergences will widen further encouraging a weaker euro and lowering EUR/USD closer to parity over the next six to twelve months.”
Key Quotes
“The euro has continued to weaken early this week which has coincided with the ECB beginning government bond purchases yesterday.”
“Yields spreads between overseas and the euro-zone continue to move against the euro. The 10-year German government bond yield declined sharply yesterday by 8 basis points. As a result the 10-year yield spread between the US and German government bonds widened to a new record high and is moving closer to almost 2 percentage points. It is the result of the significant divergence both in economic performance between the US and euro-zone economies and monetary policies between the Fed and ECB.”
“The recent pick-up in market-based inflation expectations has also resulted in real yields in the euro-zone falling more sharply further undermining the euro. The recent modest rebound in market-based inflation expectations in the euro-zone is another encouraging sign that the ECB’s aggressive easing is at least initially proving successful.”
“Even the recent strengthening of cyclical momentum in the euro-zone has failed to lift euro-zone yields and the euro, whose positive impact has been offset by the ECB’s aggressive easing.”
“It appears likely that the divergences will widen further encouraging a weaker euro and lowering EUR/USD closer to parity over the next six to twelve months.”