Home » Euro / dollar: for Algebris the downside is limited at these levels

Euro / dollar: for Algebris the downside is limited at these levels

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Euro / dollar: for Algebris the downside is limited at these levels
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Little moved today the euro / dollar cross that marks -0.09% in arra 1.0533 euro, close to the multi-year lows touched last week below the 1.05 threshold. There is great anticipation for the Fed meeting which starts tomorrow and could lead to the announcement of a substantial 50 basis point rate hike on Wednesday. According to Algebris’ global credit strategy team, we may be close to the lows of the exchange rate. First, the US-EU spread in short-term rates widened markedly in the first quarter of 2022, from 1% to 2.3%. “Given that the Fed is now priced by the market with a very hawkish stance, a tightening of the spread looks very likely in the coming months, potentially through a re-pricing of the ECB’s expectations,” explains Algebris. Second, recession fears in Europe have increased significantly, while Algebris’ models indicate an overestimation of recession fears in Europe than economic dynamics suggest. Third, risk aversion has kept dollar demand high. According to Algebris, a reduction in risk aversion would help to weaken the dollar, while investors already seem positioned for a further decline. “As a result of the three factors mentioned above, we see a good upside and limited downside for the EUR / USD in the coming months.”

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