Its strongest in more than 2 months of decline in euro against the dollar might signal that the best this year for the European currency is over. On Friday, August 7 euro fell 1.1%, while the MSCI World Index rose by 0.4%. The second time in months, the European currency has not been able to benefit from growth stocks, as it was earlier in the current year. Goldman Sachs Group Inc believes that the European currency stops growing. "Growth potential is limited because the euro in recent weeks is disappointing, given that there are excellent conditions for the strengthening of the price", - said Ian Stennard, currency strategist from BNP Paribas in London. It is increasingly evident that economic growth in the euro area lags behind the U.S. and global investors turn away from the European currency.
The correlation between growth and growth in the euro price of the shares on the stock markets disappear. In recent weeks, the correlation between the euro and the MSCI World Index is only 0.48, compared with 0.71 for the Canadian dollar, 0.72 to SEK 0.76 for the Australian dollar. Remember, the higher specified rate (the maximum he could be equal to one), the stronger the correlation. On the minima of the year, which was formed on 4 March, the euro against the dollar by 12 per cent. Basically, during the nearly 5-month euro benefited from the partial recovery of interest of investors in the carry trade, where funds are in debt in countries with low interest rate (U.S. and Japan) and investing in regions with higher interest rates (Australia, United Kingdom, The euro, etc.). The refinancing rate is 1% of the ECB, while the federal funds rate for the U.S. Fed is in a minimum range of 0 to 0.25%.
At first-year yield 10-year-old German bundesov by 74 basis points higher than returns on similar U.S. Treasury bonds. Now the 10-year yield of American trezheris by 37 basis points higher than for the Germanic bundesov. The advantage in yield bonds, which earlier supported the euro, is now dissolved in time, and investors have no incentive to buy bonds in the euro area, suggesting that the U.S. economy will recover from the crisis more rapidly than in Europe. Purchasing power parity of currencies, which is a measure of the value of similar goods in different countries, indicates that the euro at 28 per cent overvalued against the dollar.
When the market is back optimism, hope for restoring the viability of economic systems, has started the first phase of the purchase of risky assets. In this phase, the investors were illegible because they bought everything, getting rid of the yen and the dollar, which had been in their pereizbytki as asset security. However, now entering its second phase where investors are already interested in the question: what specific economic system will win in the rate of recovery. In this vein, the investors are beginning to become more selective in their investments. Players for the clarification of the issue are beginning to turn to the macroeconomic statistics. Retail sales in Germany, which is the engine of the eurozone economy, fell unexpectedly in June to 1.8% after falling the previous month. European producer price index fell by 6.6%. This is the maximum value for 28 years. In the U.S., retail sales rose in May to 0.6%, while the index of producer prices rose by 1.8%, double the number forecast. "Euro, ultimately, to weaken, as the region's economy were not strong enough" - said Ken Dixon, currency strategist of Standard Life Investments.
The correlation between growth and growth in the euro price of the shares on the stock markets disappear. In recent weeks, the correlation between the euro and the MSCI World Index is only 0.48, compared with 0.71 for the Canadian dollar, 0.72 to SEK 0.76 for the Australian dollar. Remember, the higher specified rate (the maximum he could be equal to one), the stronger the correlation. On the minima of the year, which was formed on 4 March, the euro against the dollar by 12 per cent. Basically, during the nearly 5-month euro benefited from the partial recovery of interest of investors in the carry trade, where funds are in debt in countries with low interest rate (U.S. and Japan) and investing in regions with higher interest rates (Australia, United Kingdom, The euro, etc.). The refinancing rate is 1% of the ECB, while the federal funds rate for the U.S. Fed is in a minimum range of 0 to 0.25%.
At first-year yield 10-year-old German bundesov by 74 basis points higher than returns on similar U.S. Treasury bonds. Now the 10-year yield of American trezheris by 37 basis points higher than for the Germanic bundesov. The advantage in yield bonds, which earlier supported the euro, is now dissolved in time, and investors have no incentive to buy bonds in the euro area, suggesting that the U.S. economy will recover from the crisis more rapidly than in Europe. Purchasing power parity of currencies, which is a measure of the value of similar goods in different countries, indicates that the euro at 28 per cent overvalued against the dollar.
When the market is back optimism, hope for restoring the viability of economic systems, has started the first phase of the purchase of risky assets. In this phase, the investors were illegible because they bought everything, getting rid of the yen and the dollar, which had been in their pereizbytki as asset security. However, now entering its second phase where investors are already interested in the question: what specific economic system will win in the rate of recovery. In this vein, the investors are beginning to become more selective in their investments. Players for the clarification of the issue are beginning to turn to the macroeconomic statistics. Retail sales in Germany, which is the engine of the eurozone economy, fell unexpectedly in June to 1.8% after falling the previous month. European producer price index fell by 6.6%. This is the maximum value for 28 years. In the U.S., retail sales rose in May to 0.6%, while the index of producer prices rose by 1.8%, double the number forecast. "Euro, ultimately, to weaken, as the region's economy were not strong enough" - said Ken Dixon, currency strategist of Standard Life Investments.
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