Bond Outlook
| We recently attended a conference where one questioner used the term “stinky currencies” to describe both the USD and the EUR. Given the state of both the US and the euro zone economies, this description does not appear inappropriate. The exchange rate between the two currencies varies with whichever area is receiving the more dominant press coverage, whilst all the while, the CHF strengthens. As of this week, the gloom in Europe is outdoing that of the USA, but is it unlikely to be long before the pendulum swings back. We would hazard a guess that the early summer months will see the US regain prominence as the impact of the end of QE2 becomes apparent (see below). |
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| Our view, since the euro zone crisis broke out a year ago, has been that the remarkably strong economies of northern Europe, led by Germany, would have the means and the political will to bail-out the peripherals and keep the euro zone together. We have also stated that this would imply greater “federalisation”, i.e. more central control, the imposition of austerity programmes, and the creation of a transfer mechanism. |