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Monday, May 20, 2013

If you're wondering what will be the fate of the Euro in the near future, a couple of Deutsche Bank analysts might have an answer for you. They are of the view that there are strong chances that the common Euro zone currency could depreciate significantly. This of course sounds counterintuitive at first. If economic scenario in a region is improving, then the currency should rise and not fall, isn't it? But take your mind back to the crisis of 2008-09. Here, during the crisis, the US dollar shot up but then fell later as risk of crisis abated and investors diversified into other assets. Thus, exactly similar could happen with the Euro. Here, the Euro went up as investors rushed to safe haven when risk of economic contagion increased. But now with situation imp roving, people will move out of Euro and thus, make it fall. But is it fair to assume that a second event will pan out in exactly the same way as the first one? Even if the underlying currencies and the economies involved are different. We don't think so. And precisely the reason why we don't like to predict things in the short run. This is not to say that long term predictions are always correct but certainly have a greater chance of proving themselves correct if analysed properly

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