G10 FX Weekly
Group Economics Macro & Financial Markets Research
Come-back of the euro
Georgette Boele, + 31 20 629 7789
29 May 2015 • • •
Euro’s comeback because of higher German bond yields … Strong US employment report saved the US dollar Australian dollar rally quickly ran out of steam
Euro’s come-back…
yields ran out of steam and US employment report beat
This week, the euro had an impressive come-back. The
expectations. The higher than expected non-farm-payrolls
significant rally in German government bond yields greatly
numbers and hourly earnings brought the possibility of a Fed
outpaced the rally in US Treasury yields. This provided strong
rate hike back into focus again. This has given strong support
support to the euro across the board. At the start of the week,
to the US dollar. If next week, retail sales also perform well, the
higher than expected eurozone inflation numbers triggered a
US dollar could make significant strides across the board.
rise in German bond yields and Mario Draghi missed the
USD/JPY has already moved above 125.50 and its uptrend
opportunity to calm investor sentiment. The euro is very
seems unstoppable for now.
sensitive to developments in interest rates and bond yields. So the narrowing of the spread between Germany and the US has
Australian dollar rally ran out of steam quickly
been clearly supportive for the euro (see graph below). As a
The Reserve Bank of Australia kept monetary policy
result, EUR/USD moved above 1.1300. On Thursday and
unchanged at 2.0% as widely expected. In addition, it
Friday this spread widened again because of some pressure
maintained the neutral tone in the forward guidance. This
on German Bund yields and higher US Treasury yields after
neutral guidance disappointed part of the market that had
the stronger-than-expected US employment report. Going
expected a signal of more monetary policy easing. As a result,
forward, we expect EUR/USD to move lower because of ECB’s
the Australian dollar rallied. The better than expected GDP
QE and the start of Fed rate hikes, which will support the
report has resulted in a further pricing out of a possible rate
dollar.
cut. However, the details of this report were not that strong and we remain of the view that the central bank will cut rates by
Higher German bund yields push euro higher
25bp in Q3. Later during the week, retail sales disappointed
EUR/USD
and this weighed on the Australian dollar. We remain negative
10y German-US yield spread, in %
1.30
-1.00
AUD/USD.
1.25
-1.25
1.20
ABN AMRO major currency forecasts
1.15
-1.50
1.10
-1.75
1.05 1.00 Jan 15
on the Australian dollar with our year-end target of 0.72 in
-2.00 Feb 15 Mar 15 EUR/USD (lhs)
Apr 15
May 15
Jun 15
10y GE - US spread (rhs)
Source: Bloomberg
EUR/USD USD/JPY EUR/JPY GBP/USD EUR/GBP USD/CHF EUR/CHF AUD/USD NZD/USD USD/CAD EUR/SEK EUR/NOK
05-Jun 1.1137 125.40 139.64 1.5275 0.7290 0.9398 1.0465 0.7660 0.7080 1.2490 9.3435 8.8099
Q2 2015 1.10 122 134 1.55 0.71 0.95 1.05 0.78 0.73 1.23 9.50 8.25
Q3 2015 1.00 125 125 1.47 0.68 1.05 1.05 0.73 0.69 1.27 9.50 8.25
Q4 2015 1.00 128 128 1.49 0.67 1.05 1.05 0.72 0.68 1.30 9.50 8.00
Source: ABN AMRO Group Economics
… strong US employment report saved the US dollar For most part of the week the US dollar was the weakest performing major currency. Mixed US data during the week was not of great support. The most significant weakness was versus the euro because Treasury yields did not manage to keep up with the rise in German bund yields. But on Thursday a turnaround was seen because the rally in German Bund
Q1 2016 1.05 130 137 1.52 0.69 1.00 1.05 0.70 0.66 1.31 9.50 8.00
Q2 2016 1.05 135 142 1.50 0.70 1.00 1.05 0.68 0.65 1.33 9.50 7.75
Q3 2016 1.10 135 149 1.51 0.73 0.95 1.05 0.67 0.64 1.34 9.50 7.50
Q4 2016 1.15 135 155 1.51 0.76 0.96 1.10 0.66 0.64 1.35 9.50 7.50
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G10 FX Weekly - Come-back of the euro
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