A view on the euro
With the ongoing fiscal issues in Europe, the currency continues to come under pressure relative to the US dollar. Currency selection for global investors naturally plays a big part of the total return equation. The relative pricing of global currencies mixed with numerous fundamental and political factors makes assessing one versus another extremely challenging.
I have highlighted some of the points raised by the G10 fixed income research department at Standard Bank on their views of the euro.
They have had a target of dollar /euro 1,25 euros but with this now coming into view have moved their target.
They believe that the euro will decline further to the 1.20 level over the next few months and more likely to 1.15. If it goes through the 1.20 level this will bring it back to end of 2005 levels.
The reason for the amendment of this view to a weaker euro is because the situation in the Euro zone has deteriorated quite badly.
They see this not as a Greek problem, but a Eurozone problem with other countries going to also require bailouts.
More budget cuts from Greece and other countries are unlikely to stop the rot.
The euro zone countries cannot devalue or slash rates in response to this shock, unlike the US and UK.
While there remain high deficits and debts in the US and UK, the US dollar still has considerable safe haven support.
For these reasons they believe that if contagion does start to spread it will put the euro into even deeper peril.
Today the ECB left their key interest rate unchanged at the record low 1% as was expected. ECB president, Trichet said that despite the fiscal crisis, the 1% is appropriate and there is no immediate need to cut rates further.
The euro lost further ground to its current 1,27 to the dollar.
With the increased perception of risk in the world, the rand weakened over the last few days to its current R7,62 /dollar but up slightly against the euro to R9,71.
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