More euro optimism anyone?

Even after the ECB cut rates a couple of weeks ago, there still seems to be some investors that are willing to put their money in to euros. The single currency has recovered from losses quite well recently, and even had sterling struggling to remain above 1.19 in the last session. Nothing has been particularly encouraging from the eurozone, and yet sterling has found maintaining 1.19 just as difficult as breaching and sustaining 1.20.

And then we get another reason to sell euros. Negative deposit rates!

Following the ECB’s surprise move to cut the interest rate to 0.25%, Bloomberg reported that the ECB is also considering a negative deposit rate. This spurred an unwind of euro long positions and sent the GBPEUR rate back to 1.20, while slamming the EURUSD rate below 1.35 once again. Evidence for short euro positions is building, especially against sterling where UK fundamentals are more impressive. Having said that, every time we believe it is time for the euro to continue to weaken, it finds some hidden strength and proves us all wrong. It may take more than negative deposit rates ensure the GBPEUR rate remains above 1.20.

Sasha Nugent

Currency Analyst

Caxton FX