Markets start moving again Euro loses out

22 September, 2015

Tom Arnold

Yesterday was a surprising day on the markets with a quite dramatic and sudden shift in rates seen for the first time in a few weeks. All three of the major currencies – Dollar, Euro and Sterling – had been bouncing around in quite tight ranges for a few weeks now, with last Thursday’s Fed interest rate decision supposed to be the big potential mover on the markets. When the Fed announced a hold in rates, the market collectively let out it’s held breath and did, virtually nothing. Yesterday however some big moves started to happen with the Euro going into a steep decline and the Dollar and Sterling making some significant gains.

There are a number of reasons for this – the first and most obvious were various interviews and speeches from Fed insiders over the weekend, that supported the lack of action on interest rates, but most importantly hinted towards the much waited for hike before the end of 2015. The markets often move more on rumour than actual fact and so the Dollar started to make gains. When the Dollar makes moves the Euro tends to do the opposite and so the Euro slide began.

The next factor was likely the Greek election over the weekend. Many observers had expected Alexis Tsipras’s Syriza party to pay the price for signing the Greek /European debt deal recently having previously campaigned on an anti-austerity docket. But instead he was re-elected, and now just has to find some coalition partners to form a government. On the face of it does this really matter for the Euro? The Greeks are tied into the aforementioned debt repayment deal and so everything should be plain sailing, but the markets don’t like troublemakers and Syriza definitely comes under that heading, so with Tsipras in power again the fear is that choppy waters could be just around the corner again, and hence pressure on the Euro.

The last factor is simple risk appetite – the markets are confident they know what is happening now – no immediate US interest rate hike, but likely in the next 2-3 months, no UK interest rate hike until next year and certainly no action in Europe, coupled with relative economic stability across all of those regions, so investment fear is off the agenda – when this is the case risk positions are entered into and higher yields are sought, and the markets start moving again.

What this means for now is a good opportunity to buy Euros at rates unseen for a few weeks, and possibly some good buying opportunities on some of the riskier currencies – antipodeans for example – as investors move their positions around, so stay in close contact with your CI account manager to be kept informed of exactly what is happening and what your options are.