Euro dollar shock forces rethink across world markets

All German government bond yields out to seven years’ maturity are negative and, remarkably, it costs Germany less to borrow for 30 years than the U.S. This would mark the dollar’s best quarter since 1992 and fourth best since the Bretton Woods system of fixed exchange rates https://day-trading.info/trademax-llc-digital-marketing-solutions/ was abolished in the early 1970s. Europe is grappling with surging infections and new COVID-19 restrictions, with Germany’s economic advisers trimming next year’s growth outlook. New York has ordered bars and restaurants to close early as U.S. cases hit record levels.

The moves in the past week have for now put the brakes on a long drop for the dollar, which had shed about 10% against a basket of currencies between March and the announcement of progress on Pfizer’s COVID-19 vaccine on Monday. The British currency last traded 0.4% lower to the dollar at $1.3167. LONDON, Nov 12 (Reuters) – The dollar dipped on Thursday as investors appeared to waver between optimism and caution over expectations about a COVID-19 vaccine that is unlikely to avert a grim winter in Europe and the United States as the pandemic’s second wave intensifies. The yawning long-term interest rate and yield gap opening up between Europe and the United States has been the driving force.

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The evaporation of euro debt yields thanks to the ECB’s bond purchases, on top of the currency moves, is also encouraging a flood of U.S. firms to raise funds in euros instead of dollars. A rising dollar eats into the overseas earnings of U.S. companies and makes U.S. exports more expensive on global markets. Even the White House has waded in, with Council of Economic Advisers Chairman Jason Furman saying on Tuesday that the surging dollar is a headwind for U.S. growth.

Conversely, the dollar index, a measure of the greenback’s value against six major currencies, is up 10 percent so far this year as the U.S. Federal Reserve gears up for its first interest rate increase in nine years, just as the ECB is easing by printing money to buy euro zone bonds. “It is highly possible that you could see more U.S. companies coming to Europe to issue debt simply because of the way interest rates are getting lower over here,” said Dennis Jose, director of global and European equity strategy at Barclays in London. So far this year U.S. corporate debt issued in euros has totalled 33.9 billion euros, according to Thomson Reuters data. That’s more than three times the 9.8 billion from the same period last year and the highest since the same period in 2007. The S&P 500’s 1.7 percent slide on Tuesday pulled the index into the red for the year while the EuroStoxx 50 index of leading euro zone shares is up 15 percent on the year.

Euro/dollar shock forces rethink across world markets

The weak euro makes euro zone equities comparatively more attractive than U.S. stocks, initially by making them cheaper in dollar terms. Thereafter, investors hope European companies will outperform thanks to a more advantageous exchange rate for exporters outside the region, a trend that should become entrenched if the ECB’s stimulus has the desired effect of reviving growth and inflation. The euro/dollar rate, which channels almost a quarter of the$5 trillion that flows daily through world currency markets, has been falling steadily for months, as markets factored in the https://currency-trading.org/currency-pairs/eur-cad/ European Central Bank’s 1 trillion euro stimulus plan which finally began this week. LONDON, March 11 (Reuters) – The euro’s accelerating slide towards parity with the dollar and beyond has caught investors and multi-national firms off guard, forcing scrambled revisions of long-range forecasts and a major strategic rethink across global markets. Before a cautious mood spilled over from equities trade into the currency markets, the kiwi made a fresh 20-month high versus the U.S. dollar as traders became less convinced that negative rates are a sure thing for New Zealand.

Only a week ago, Reuters polls showed a consensus among more than 60 currency strategists that the euro would appreciate to $1.12 in a month and then to ebb to $1.08 in a year. While the euro’s fall began in slow motion, its gathering speed this month has led to sharp swings across most asset classes while investors reconsider how capital flows across borders will pan out. President Donald Trump’s refusal to concede defeat to Democrat Joe Biden in last week’s election is also beginning to jangle investors’ nerves. “The weakness in broad USD and reflationary momentum in equities, which we saw on the back of the U.S. election and improvements in the vaccine situation, seem to be fading across FX and equities,” said Christin Tuxen, Head of FX Research at Danske Bank.

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U.S. companies are also the engine of the biggest surge in merger and acquisition (M&A) flows into Europe since the 1970s. Inflows into European equities since mid-January have been a sizable $27 billion. But outflows in the second half of last year were $48 billion, suggesting the $21 billion gap https://trading-market.org/interactive-brokers-review-complaints/ means there is still “notable” potential for further inflows, according to Barclays. Deutsche Bank said on Tuesday it now expects the euro to fall as low as $0.90 next year and $0.85 in 2017. Losses of more than 12 percent so far this year put it on track for its biggest ever quarterly loss.