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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
FOREX
- In the past 50 years, we have seen that currencies have had many different ST/MT/LT drivers, which led to several empirical studies searching on how to value exchange rates.
- One important driver of the EURUSD exchange rate over time has been the EU-US r* (natural rate of interest) differential.
- The chart below shows how strongly has EURUSD co-moved with the r* differential since the 1970s.
- We use the Holston, Laubach and Williams (2016) data for the r*, and we use a proxy for the Euro before 1999.
- While most of the weakness in the US Dollar was attributed to the sharp monetary policy expansion run by the Fed to rescue the global economy from the Covid19 shock, part of it could also be attributed to the significant fall in the US r* rate in the first half of 2020 (relative to the Euro area).
- We will have to see further developments in the coming quarters, but the single could receive some support in the medium term if the r* rate in the US recovers more slowly than in the Euro area.
Source: Bloomberg/MNI, Holston et al. (2016)
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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