Uncertainty threatens Euro’s safe-haven status, for now

The Euro Nominal Effective Exchange Rate (NEER) appreciated about 8% between 20th April and late-August and outperformed all major currencies. However, since its multi-year high on 28th August the Euro NEER has weakened an albeit very modest 1%.

The question is whether/when the Euro may again find favour and set new multi-year highs or whether a more acute correction looms.

Part of the answer lies in the confluence of inter-related factors which contributed to the Euro’s steady climb in the first place but have recently lost some traction.

Prior to its take-off in April, the Eurozone NEER had been one of the more stable among the majors. The Euro was perceived as neither a “risk-on” nor “risk-off” currency and the ECB tacitly welcomed the Euro’s underperformance versus its key trading partners’ currencies.

While the French presidential election in April-May was an important catalyst for the Euro’s appreciation, the seeds for its rally and accession to “safe-haven” status had arguably been sown in 2015-2016.

However, some of these Euro-positive factors have become prey to far greater uncertainty and lost traction in recent weeks, undermining the Euro’s relative appeal while the Dollar and Sterling narrative has improved somewhat.

Financial markets have in particular reacted negatively to Sunday’s German federal election and uncertainty it has generated, both at a domestic and European level.

The Euro finds itself at a cross-road and I see little scope for rapid and/or sustained appreciation until the ECB announces the modalities of an extended QE program and a new German government is in place, with the risk biased towards bouts of Euro weakness.

Longer-term, however, a number of factors could drive renewed Euro appreciation, albeit at a likely slower pace than in April-August.

Read the full article on my website.

UK referendum: Blame the weather, not Brussels

The outcome of today’s crucial UK referendum on EU membership will partly depend on how many of the 46.5 million registered voters cast their postal votes and turn up today at voting booths which opened at 07.00 (UK time) and will close at 22:00.

Opinions polls have concluded that a lower voter turnout today would favour the Leave vote while a higher turnout would favour the Remain vote.

But intentions to vote are not the same as actually ticking the ballot box. Bad weather is more likely to keep people at home and turnout low, favouring the Leave vote while dry weather would in theory encourage people to vote, in turn favouring the Remain camp.

There have so far today been scattered showers across the UK and the Met Office has issued an amber weather warning for the East of England, London and South-East England, with predictions of thundery showers throughout the day.

However, the Financial Times is reporting that in many parts of London there are long queues at several polling stations and the Met Office is forecasting largely dry and cloudy weather elsewhere in the UK.

It is somewhat ironic that the unpredictable British weather, a favourite topic of conversation, could potentially change the British economic landscape for years to come.

The consensus expectation is that if the UK votes to remain in the EU, sterling, UK equities and to an extent the euro and global equities will rally sharply. But this rally could start to fade after a few days, as markets refocus on global data and events and the British turn their attention to the all-important matter of the Euro 2016 championships and perennial question of whether Andy Murray can win a second Wimbledon title.

But acute uncertainty and market volatility would likely persist for weeks and potentially months should the leave camp win today’s referendum, particularly if it wins by only a very narrow margin and/or turnout is low.

Read the full article on my website.


The growth of eurozone exports in April-May was modest, rather than spectacular, and uneven across individual euro-member states. While a cheaper euro has likely helped boost peripheral eurozone economies’ exports and this may become more obvious in forthcoming data, other factors – including weak emerging market demand – are clearly also at play.

Read the full article here.