Is it time for the euro to move higher?
Based on differences in bond yields, the euro should appreciate against the US dollar. As today’s chart shows, there is a reasonable correlation between the EUR/USD exchange rate and the gap between short-term bond yields in Germany and the US. As the euro has less room to decline – with its deposit rate at -0.40%, the ECB is unlikely to be able to cut rates to the same extent as the Fed can – the gap has decreased, suggesting upward potential for the currency. There are, however, other factors at play, such as the impact of the ongoing trade war between China and the US. The Eurozone is, by definition, more vulnerable to hick-ups in global trade, making it difficult to be overly enthusiastic about the euro at this point in time.
As a senior portfolio manager I use charts to illustrate financial issues every day. I tweet my favorites as @jsblokland and was named 'one of the 50 most important people for investors to follow in 2018' by MarketWatch.
Previous editions of the daily sketch can be found on my personal financial markets blog. All graphics provided are collected from Bloomberg data and public websites. They do not always reflect my personal opinion and may also not necessarily reflect the opinion of Robeco. Please cite all references or quote the original source if replicating content.