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Asset management and fund structuring boutique

Towards parity

Jul 06, 2022

The EUR has fallen to a 20 year low and is on track to reach parity. There are some technical factors behind this like the lower liquidity due to the holidays but make no mistake: the fundamental picture for the common currency is bleak. The latest example is the Ukrainian war that has laid bare the Archilles heel of the “German Wirtschaftswunder”: its heavy dependence on energy imports that are currently being disrupted. Lack of common policy and leadership, lack of structural reforms and now risk of fragmentation in the Club Med countries are all weighting on investor sentiment. The ECB does not have a lot of room of manoeuvre to raise rates at the same speed as the Fed over the coming quarters. The 2 only positives we see are: 1/ our European exporters are gaining competitiveness in global markets and 2/ animal spirits are rising amongst foreign investors with deep cash pockets to buy bargain assets in Europe. Unfortunately we do not really see why the Euro would strengthen in the near term.

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