LONDON (Reuters) – The euro could rise against the dollar if a global recession hits, BNP Paribas (OTC:) Markets360 said, marking a break from previous trading dynamics.
Sam Linton-Brown, the bank’s head of global macroeconomic strategy, offers a number of reasons behind what he describes as one of the team’s controversial views.
This includes the dollar being a high-yielding currency, which has not been the case historically, meaning the dollar is more vulnerable to falling as U.S. interest rates fall. The Fed pushing interest rates higher than many other central banks is another factor.
Linton Brown also said that interest rate differentials between the euro and peripheral governments in the single currency area had become less sensitive to periods of risk aversion, which was positive for the euro.
Why is this important?
The EUR/USD is the most traded currency pair in the $7.5 trillion daily global currency market, and investors around the world track the factors driving its direction.
Main quote
“If the US goes into a hard landing, that would make us more bullish on the euro versus the dollar,” said Linton Brown.
Context
The baseline scenario that BNP Paribas Markets 360 expects is a soft economic landing.
It expects the euro to rise to $1.15 against the dollar by the end of 2025, which would represent a gain of just over 3.5% from current levels of around $1.11.
A recent Reuters poll forecast the euro would trade at around $1.12 in a year.
What’s next?
The U.S. Federal Reserve is widely expected to cut interest rates for the first time in four years on Wednesday, possibly by half a percentage point. Speculation of a big cut has already hurt the dollar, and any signs that the U.S. economy — particularly the labor market — is slowing faster than expected could stoke recession fears.
graph
Comments are closed, but trackbacks and pingbacks are open.