Russell Investments cuts euro position

Russell Investments has decided to reduce its euro position as more QE from the European Central Bank (ECB) is seen likely to happen soon.

Head of Currency and Fixed Income Strategy, Van Luu, comments on their decision to reduce their position on the euro to neutral following yesterday’s ECB press conference:

“Draghi surprised markets yesterday with the prospect of adjusting the central bank’s quantitative easing programme in size, composition and duration at its December meeting. It is a clear indication that Draghi’s force of personality has convinced the more reluctant members of the governing council to do away with their concerns and reload the bazooka.

“In essence, the ECB president fired the starting shot for the theme of policy divergence between the US and the euro zone to reassert itself in the currency markets. We don’t want to stand in the way of that and reduce our position on the euro from positive to neutral on the prospect of more and/or longer quantitative easing as early as December.

“The risk is that while the ECB has made a rhetorical dovish shift it doesn’t follow up with concrete action in December. For example, it is conceivable that the staff projections in December will be more benign than currently expected and the need for further action diminishes as financial markets continue to stabilise.

“However, while we do acknowledge this risk, we think that the ECB has nearly committed itself to doing more quantitative easing. In our view, only a substantially weaker euro and/or a major positive surprise in incoming data will convince them to hold off.”

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