Why the euro rallied.
Big question. The Fed kept rates at their current levels of 5.25%. The ECB has their rates set at 3.75%. The question is, where’s the carry in that? There’s not. We’re not even likely to see the differential ever go to zero with these two currencies. But, the way the market sees things, the ECB is still interested in at least one more increase, whereas the Fed is done.
Again… where’s the differential in that?
The real reason the euro rallied could go beyond the differential between the two. Instead, it goes towards the differential in the EUR, GBP, and AUD vs. the JPY. Carry on, yen. Carry on.
With the equities markets printing profits faster than the BoJ can print money, investors over there are loathe to continue to bring in just 0.50% when their options overseas far outweigh other areas. As long as the carry continues on, then the majors are going to outperform the USD. That’s the way crosses usually pan out.
Carry on, yen. Carry on.
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