How does the Ukraine crisis affect the European currency market?

 How does the Ukraine crisis affect the European currency market?

If growth in the Eurozone is maintained at a reasonable level and the ECB continues to raise interest rates this year, Goldman Sachs still believes in a bullish outlook for the euro.

How does the Ukraine crisis affect the European currency market? Coins of 10, 20 and 50 euros.

European currency and asset markets have not yet recovered from the severe plunge and wild volatility of recent weeks.

In the midst of that, strategists are changing their investment plans as the tension between Russia and Ukraine shows no sign of ending.

Will the euro depreciate in the long run?

Deutsche Bank (Germany)'s currency volatility index rose to 10% on the morning of March 8 in Europe, the highest level since April 2020 - the early stage when the COVID-19 pandemic began to spread. globally.

Also in this session, the euro gained 0.4% against the dollar as investors were less panicky and less likely to turn to safer haven channels.

However, the euro is still down more than 4% against the greenback since tensions between Russia and Ukraine escalated.

In a report released late last week, co-heads of foreign exchange, exchange rate and global risk management Zach Pandl and Kamakshya Trivedi of Goldman Sachs said that the Wall Street giant's assessment for the euro is no longer as optimistic as before.

They emphasize this will not improve as long as Russia-Ukraine tensions continue.

Goldman Sachs forecast models showing a downgrade in the growth outlook across the eurozone sent the euro/USD pair down about 1% last week.

Meanwhile, the risk premium (just the extra return that an investor can get for taking on a higher risk) across the European market increased in value by almost 4%.

Two Goldman Sachs senior managers said that despite a sharp drop in the euro/USD exchange rate, forecast models suggest that the euro should be trading slightly lower - around $1.07 - $1.08. exchange for 1 euro - based on fluctuations in other market factors.

While it is noted that the above estimates should be viewed with caution, Goldman Sachs models show that the euro remains relatively strong against the Polish zloty, the Swedish krona, the US dollar, and the US forint. Hungary and the British pound, while slightly weak against the Swiss franc (CHF).

In the opinion of experts from Goldman Sachs, euro/USD and euro/pound are the most suitable trading pairs for hedging activities related to the current Ukraine situation.

Strategists also note that the euro/CHF pair has reacted very sensitively to developments in Russian-Ukrainian tensions so far, as the CHF is inherently a safe-haven.

However, the risk of the Swiss National Bank intervening to prevent the appreciation of the local currency is also higher in the recent period.

The hostilities destabilize the eurozone's macroeconomic outlook. But experts Pandl and Trivedi suggest that this will not necessarily push the euro to slide for a long time. As the European Central Bank (ECB) can act to ease worries about the impact of this development on inflation, while governments can respond to the crisis by easing fiscal policy. lock up.

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