Morgan Stanley: Why Is It Hard For The Euro To Rebound?

Morgan Stanley (Morgan Stanley) said on Friday (March 6th) that "Europe's economic data improved significantly over the past few weeks, benefiting from better expected growth in employment, internal demand and German inflation data, but the euro has fallen more than 11 years ago."

What is the reason for the disconnection between economic fundamentals and monetary performance?

The reason for the divergence of the euro is that the currency pair is undergoing structural pformation.

Morgan Stanley especially stressed two of the key factors:

First of all, the current situation of the euro is similar to that of the yen in the beginning of Andouble economics. It is experiencing hedging flows.

"Despite the continuous improvement of the economy and potential inflation,"

Indeed, they are buying European stocks on a large scale, but these capital inflows are mainly achieved by currency hedging, and their support for the euro is very limited.

Considering that foreign investors tend to eliminate exchange rate risk when investing in Europe, we believe that investors are increasing the foreign exchange hedge ratio when buying European stocks.

This trend is likely to suppress the euro in the next few days, which has also delayed the rebound in the euro.

(hedging inflows are much higher than non hedging inflows).

Second, order

Another important factor in continued pressure is the euro being treated as a

The proportion is increasing.

The European Central Bank's monetary easing policy puts Europe in a negative interest rate environment, which makes the yield difference between the euro and other G3 countries wide. At present, the yield of the euro is even lower than that of the traditional financing yen.

Under such circumstances, investors, enterprises and even sovereign investment funds have chosen to abandon traditional financing currencies, such as the US dollar and Japanese yen, instead of using the euro as a financing currency.

Based on the above view, Morgan Stanley believes that the euro may fall to 1.05. before the end of the year.

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Goldman Sachs strategist Robin Brooks, economist George Cole and analyst Michael Cahill, in a letter to customers on Friday (March 6th), said that the 17-18 meeting of FOMC on March will be pushed up again by the US dollar.

Past FOMC meetings showed that the US dollar rebounded by 2%-3% in two weeks after policymakers lowered their future guidelines.

Goldman Sachs pointed out that last year's meeting Yellen had said that the data would determine the time to raise interest rates, and that the word "patience" was mentioned in the two meeting.

The FOMC conference, which will be held in mid March, will also be the case. Because of non-agricultural expectations, the word "patience" may be removed at the meeting.

However, whether the Federal Reserve is raising interest rates in June or September or even later, there is still a risk that the interest rate will be lost before the real interest rate rises.

Overall, Goldman Sachs economists expect the fed to announce interest rate hikes in September.