Analysts at ING see that the EUR adopting the characteristics of a funding currency. They suggest it would make the EUR/USD less sensitive to risk appetite.
Key Quotes:
“Despite secular stagnation fears, total cross border borrowing on a year-on-year basis is actually rising at the fastest rate since the global financial crisis. And leading the charge is cross-border borrowing in the EUR. Over the last twelve months, participating banks report that their cross border lending in EUR has risen by near US$900bn, while USD lending has risen by around US$550bn.”
“It would seem that the EUR is becoming the preferred borrowing currency of choice, enjoying good liquidity, low volatility and most importantly, little risk of interest rates rising anytime soon. We’ve seen these trends emerge and weigh on the likes of the JPY and the CHF over the last two decades and see early signs of the EUR of crossing the floor to join these funding currency peers.”
“This would suggest that even if the risk environment does improve a lot, EUR/USD would lag. That’s why we see EUR/USD continuing to trade near the 1.10 area over the next several months and only see limited upside – perhaps to the 1.15 area towards the end of 2020.”
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