daily eurodollar
Goldman Sachs said slowing capital inflows and weaker terms of trade limited prospects for a continued euro rally.
Is there a good reason for its continued appreciation? Goldman Sachs thinks it probably doesn’t exist. Positive yields have managed to stop outflows from euro zone bonds, returning to the pre-2014 norm of moderate inflows, although the inflows are not as rapid as they were when rates first turned negative. That’s partly because foreigners continue to sell sovereign bonds around the euro, and the size of inflows isn’t usually associated with currency strength.
Moreover, the valuation-based portfolio redistribution argument is less persuasive than it used to be, largely due to the recent appreciation of the euro and deteriorating terms of trade. Therefore, the central bank sees limited prospects for continued euro appreciation.
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