EUR: our new safe haven?
By Mark Jensen, FBS analyst
During the past few years EUR has been a barometer of risk: it fell in times of bad sentiment and rose than investors were eager to risk. In December this situation changed. Euro tried on a role of safe haven and reacted in the opposite manner:
- Euro was pretty unaffected by the recent crisis in the emerging markets
- Euro rallied on some days when stocks were falling down
Usually such behavior was seen only in USD, JPY and CHF. Euro became a safe haven because the euro zone’s debt crisis is no longer here and due to the euro zone’s large current-account surplus which means steady demand for EUR. The ECB’s low rates make loans in euro attractive. Overseas traders borrow money in euro and invest in riskier higher-yielding currencies. In the times of stress they unwind risky positions, and repay their loans in EUR buying it to do so.
So, if tensions at emerging escalate, euro has a chance to keep doing quite well. However, this may change if euro zone’s peripheral markets become more susceptible to external shocks. Uncertainty about the ECB’s policy may also worsen euro’s safe haven status.
After the article in Wall Street Journal