The euro may be “reigning supreme” at the moment, but not everyone is convinced the rally can continue.
Medieval poets aren’t the most obvious source of investment advice, but Bilal Hafeez at Nomura channelled Dante’s Divine Comedy in his latest note on the single currency, recommending investors take profits rather than get too greedy* betting on further strengthening.
The euro has gained close to 6 per cent against the dollar since Nomura recommended buying the currency shortly after the first round of the French presidential election, hitting 14-month highs earlier today.
Mr Hafeez points out that “such a sharp move is rare”, with further gains generally only occurring during a bounce-back from a crisis or when monetary policy between the US and eurozone sharply diverges.
He thinks markets have already moved a long way to “re-price the euro area”, pointing to rising Bund yields, which have hit 18-month highs amid rising expectations that the ECB will finally move to end its stimulus measures.
That’s not to say that the euro will completely reverse course – the bank still expects factors such as a growing US current account deficit and the rest of the world catching up with the Federal Reserve’s monetary policy tightening to weigh on the dollar and support the euro over the longer term, but “for now we look for a pause in [euro] strength, or even a correction”.
*Or, in Mr Alighieri’s words, fall prey to the “inveterate wolf whose endless hunger takes more prey than any other beast beside, yet is not filled”.