BNP Paribas says euro could rise, not fall, if recession hits By Reuters

LONDON (Reuters) – BNP Paribas (OTC: ) Markets 360 believes the euro could recover against the dollar if there is a global recession, marking a break with previous trading dynamics.

Sam Lynton-Brown, global head of macro strategy at the bank, offers a number of reasons for what he describes as one of the team’s controversial views.

This includes the dollar being used as a high-yielding currency, which historically has not been the case, meaning the dollar is more vulnerable to declines as US interest rates fall. The Federal Reserve pushing rates further above their neutral level than many other central banks is another factor.

In addition, Lynton-Brown said euro and peripheral government bond spreads in the currency bloc had become less sensitive to risk-free periods, a positive for the euro.

WHY IT’S IMPORTANT

The euro/dollar is the most actively traded currency pair in the $7.5 trillion-a-day global forex market, and the factors behind its direction are watched by investors globally.

KEY QUOTE

“If the US were to go into a hard landing, it would make us even more bullish on the euro/dollar,” Lynton-Brown said.

CONTEXT

BNP Paribas Markets 360’s base case is for a soft economic landing.

The euro/dollar is forecast to rise to $1.15 by the end of 2025, implying a gain of just over 3.5% from current levels of around $1.11.

A Reuters poll recently projected the euro to trade around $1.12 within a year.

WHAT’S NEXT

The US Federal Reserve is expected to cut interest rates for the first time in four years on Wednesday and could even cut by half a point. Speculation of an excessive tapering has already weighed on the dollar, and any sign that the US economy is slowing faster than expected – particularly in the labor market – could fuel recession worries.

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