EUR: Trading in a range – BBH

Analysts at BBH note that the euro has been confined to less than a quarter cent range today as the stronger than expected German IFO series is not so surprising, except perhaps that it shows no concern about the changing coalition following last month's election.  

Key Quotes

“The flash PMI already showed job creation and rising prices.  The DAX is sitting near record highs set a week ago.  It is up nearly 3.5% this month and 13.25% year-to-date.”  

“Widening interest rate differential should exert downward pressure on the single currency.  The two-year differential is now at 231 bp, the highest in nearly 20 years.  The US 10-year premium is pushing toward 200 bp and is the highest in four months today.  Many participants are concerned about a hawkish response to the ECB's announcement tomorrow that is widely expected to re-scale (taper) its purchases while extending them well into next year (for six to nine months).  Because the market thinks it knows how much more assets the ECB can buy, without changing its self-imposed rules, many still see the euro appreciating.”