Goldman Sachs notes the weakness of the euro and EUR/USD nudging year to date lows
- is down 1.6% against the majors since early September
- EUR/USD is just off fresh year-to-date lows
- Over that period, the single currency has underperformed all of our models, where the fundamentals point to some deterioration but not to this degree
Offers up 3 reasons, none of which should come as much surprise, but a useful quick summary nonetheless:
we think this underperformance is likely a combination of
- lower real rate differentials (despite European nominals leading the charge higher, the change in policy expectations is not enough to offset the shift in inflation compensation),
- equity hedging flows,
- and a relative downgrade of European growth
EUR/USD chart YTD:
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