27 Jun 2013
Flash: EUR & GBP weaken against USD - BTMU
Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the low yielding funding currencies of the euro and pound have continued to weaken modestly against the US dollar despite the weaker than expected US Q1 GDP report.
He sees that both currencies benefited to an even greater extent than the US dollar from the recent liquidation of carry trades with Eurozone and UK yields tracking US yields higher although by less. He feels that if yields begin to correct lower it also appears likely that yields in the Eurozone and UK are more vulnerable to the downside given their weaker domestic growth and inflation outlooks. Further, he adds that both ECB officials and BoE members have been vocal this week in attempting to talk down yields weighing upon the euro and pound. He writes, “EU finance ministers reached an agreement overnight over how to assign losses to private creditors in any future bank bail out ahead of the EU Leaders Summit.”
He sees that both currencies benefited to an even greater extent than the US dollar from the recent liquidation of carry trades with Eurozone and UK yields tracking US yields higher although by less. He feels that if yields begin to correct lower it also appears likely that yields in the Eurozone and UK are more vulnerable to the downside given their weaker domestic growth and inflation outlooks. Further, he adds that both ECB officials and BoE members have been vocal this week in attempting to talk down yields weighing upon the euro and pound. He writes, “EU finance ministers reached an agreement overnight over how to assign losses to private creditors in any future bank bail out ahead of the EU Leaders Summit.”