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May 25 - 09:55 AM

EUR: 2 Reasons Why The EUR Is Unlikely To See Sustained Appreciation - Goldman Sachs

By eFXdata  —  May 25 - 08:30 AM

Goldman Sachs sees limited prospects for continued EUR appreciation on muted inflows and deteriorating terms of trade.

Is there enough reason for continued appreciation? Goldman Sachs believes there probably isn't. Positive yields have managed to halt outflows from Euro area fixed income and return to a pre-2014 norm of gradual inflows, but the inflow is not as quick as the outflows were when rates first went negative. This is partly because foreigners continue to sell sovereign bonds in the Euro periphery, and the scale of inflows isn't typically linked with currency strength.

Additionally, the argument for portfolio reallocation based on valuation is less convincing than before, mostly due to the Euro's recent rally and the deterioration in its terms of trade. Therefore, the bank sees limited prospects for continued Euro appreciation.

Source:
Goldman Sachs Research/Market Commentary

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