Recent Articles

A Tale of Two Central Banks

I want to start with a plain English summary of how the economy is doing.  The economy is doing very well.

Jay Powell, Federal Reserve Chair

June 13th, 2018


The risks surrounding the euro area growth outlook remain broadly balanced. Nevertheless, uncertainties related to global factors, including the threat of increased protectionism, have become more prominent.


Mario Draghi, European Central Bank President

June 14th, 2018


Last week I asked whether the USD had peaked against the EUR following its recent rally and concluded that, on balance, it probably had not.  This view was soon put to its first test, with interest rate decisions from the both the Federal Reserve and the European Central Bank last week, far, so good.  It was not the decisions themselves that mattered – it was widely assumed that the Fed would hike and the ECB would not – but rather the prognostications from Messrs Powell and Draghi which boosted the...

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Has the USD peaked?

‘Next week the (ECB’s) Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases.”


Peter Praet, Chief Economist, ECB, June 6 2018


EURUSD has had a hectic three months, dropping almost 10 cents from its March high, to a low just above 1.15 in May in the wake of the Italian political crisis.  It has since bounced back up to 1.18 as the Italian crisis has stabilized (as discussed last week) and the ECB has reiterated that it still intends to at least discuss the rolling back of their quantitative easing programme. With the Bloomberg consensus forecast still pointing to a stronger euro (median forecast is 1.22 by year end) and the ECB talking about shifting away from an uber-dovish monetary policy, is the worst now over for the single currency? 


In our view, there are two primary reasons to make...

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Eurozone uncertainty rears its ugly head

Another week on and another Eurozone crisis appears to have been averted (for the time being). Last week started with Italian bond yields rising sharply (the yield on the 2-year bond rose to 2.76% its high level since August 2012 while EURUSD fell to 1.1510) amid concerns that another general election could descend into another referendum. However, shortly after the leaders of the 5 Star Movement and the League joined forces in a second attempt to form a government, an agreement was reached and Guiseppe Conte was named the new Prime Minister.


Conte is a little-known law professor who belonged to neither party and was not elected so was a somewhat surprising choice to lead the coalition. However, his pledge to improve the quality of life of all Italians was well received by the markets prompting the 2-year yield to fall back to 0.82% and EURUSD to recover back to 1.1750...

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