EUR/USD could get a big boost from Q1 rate moves – SocGen

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The euro is getting ahead of itselfbut that may continue, according to Kit Juckes, chief global currency strategist at Societe Generale.

Year-end short positions for the euro

“We expect the 10-year US-Germany yield spread to narrow from 180 basis points to 115 basis points by the end of the first quarter, and the 2-year rate spread to narrow from 190 basis points to less than 1%. The last time we saw this kind of rate/yield differential, EUR/USD was above 1.15, which is where it will be at the end of the first quarter if it continues to rally at the pace it has since reaching 0.95 at the end of September”.

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“The caveat is that the correlation between rate spreads and EUR/USD has been horrible of late. I’ve had better luck looking at relative growth expectations, but these have leveled off and while market sentiment is improving relative to Europe, the euro is shooting up on that basis.”

“There are definitely some end-of-year shorts to lift the euro, as well as optimism about the energy and geopolitical outlook. It may take us until Christmas, but I’ll try to resist the urge to revise the 2023 forecast higher. thanks to that.”

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Source: Fx Street

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