Goldman Warns That Rising Euro May Prompt ECB Action Soon

Tyler Durden's picture

Via Goldman Sachs,

One risk factor for the economic outlook is the exchange rate. The trade-weighted Euro has appreciated by 2.5% since the beginning of this year and by almost 5% since the announcement of the OMT in September.


To be sure, this appreciation comes after a significant weakening of the Euro in the preceding 12 months on the back of rising concerns about the stability of the Euro area, and the Euro TWI is still more than 1% below its average since 2008.



Moreover, export expectations are improving on the back of the pick-up in the global industrial cycle despite the appreciation of the Euro. The index of ‘new exports orders’ in the PMI survey, for example, rose to a level of 48.8 in January after reaching a trough of 44.7 in September. Thus, there is so far no indication that the exchange is putting the ‘gradual recovery’ scenario at risk.


When asked about the exchange rate in the January press conference, President Draghi said that “… the exchange rate is certainly a very important element as far as growth and price stability are concerned, and we certainly use it as one of the elements in our economic assessment”. However, he also said that “… so far, both the real and the effective exchange rate of the euro are at their long-term average.”


But a further strengthening at a similar same pace to what we have observed in recent months would eventually weigh more meaningfully on the economy, and this in turn would lead to a change in the “medium-term outlook for price stability”. The ECB, we think, would react in this case by cutting rates, in an attempt to slow the upward momentum of the exchange rate.

...And while Goldman notes that deposit shifts have begun to 'normalize', fragmentation remains and lending to corporates continues to decline...

One area where there is little evidence of a normalisation is lending to the non-financial corporate sector. President Draghi himself made this explicit in the January press conference, when he said “we have signs that fragmentation is being gradually repaired, but all this has not yet found its way through to the real economy”.


The latest data on bank lending are unlikely to change this assessment as December saw the biggest decline in corporate loans outstanding, with banks reducing loans by EUR52bn in that month alone. Most of that decline reflects ‘statistical noise’ owing to restructuring in the Spanish banking sector, and the December figures need to be treated with some caution. But even accounting for this one-off decline, the number still looks disappointing. Lending in Italy, for example, has declined by EUR9.1bn, raising questions about the improvement seen in the last two months. Bank lending rates are another important indicator for tensions in the peripheral banking system. While we have seen some moderation in bank lending rates in Italy and Spain, the overall level -- and the spread over the equivalent German rates -- remains very high. Finally, the Governing Council will look closely at the result of the Q1:2013 bank lending survey (results will be published the day before the February ECB meeting).


The view of the Governing Council has so far been that it will simply take more time for the improvement in funding conditions for banks to be passed on. We think the ECB will stick with this ’wait-and-see’ approach for the time being.

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Bold Eagle's picture

OT, but I thought you may be interested to know that Illinois delays $500 mil bond offering after S&P downgrade. Can Illinois print its own money?

swissaustrian's picture

EUR/CHF is already signalling a turn in the trend, you can go short every day arround 4 am ET (9am GMT) shortly after the European opening bell until the European closing bell at 11:30 am ET.

Stoploss's picture

So they have 75 bps to work with. That means a 25 cut per year for the next three years after this one.


khakuda's picture

Goldman is the ECB.

Shizzmoney's picture

Goldman is 99% of the Central Banks in the world.

buzzsaw99's picture

Squid bearish public pronouncement = Bullish for the Euro.

SheepDog-One's picture

Oh, more 'action'...gee that's real swell.

PUD's picture

Competitive currencies are like competitive fundamentalist religions. Both end in conflict. Until the world begins behaving and functioning as one planet nothing will change. Until there is a global commodity backed currency nothing will change. Until fractional banking and debt based money is eliminated nothing will change...except the final and total collapse that is.

Dr. Engali's picture

My first thought shit. This is what the best and the brightest can come up with? But after thinking for a minute.... the Bernank has clearly shown that he is going to out print everybody, plus it is coming from Goldman so they are probably on the other side of the trade. Stolper already gave the muppets their one win for the year....time to take them to the cleaners.

gkumar's picture

Bullish for Euro

Confundido's picture

Draghi finances sovereign debt, the Fed finances Euro corporate debt (via fx swaps that put a cap on the cost of USD liquidity). 

On the other hand, some believe that as soon as a Euro sovereign reaches a primary surplus, the incentive to default/restructure/leave the euro will be the catalyst for the next act.

Sudden Debt's picture






Sudden Debt's picture


stinkhammer's picture

steve liesman is a fucking douche bag   whew  thanks    i needed that

Inthemix96's picture


Do us all a favour and fuck off and die you fucking hive of filthy fucking parasites.

The whole wide world is aware of your parasitical theiving non-producing lies.


orangegeek's picture

Euro is completing wave 2 up.


Once complete, wave 3 down will follow - and the US Dollar will rocket.

SoundMoney45's picture

The title should be: "Goldman warns that Euro is not losing value fast enough, and calls for increased Euro creation."

youngman's picture

This means a lot more lunches and meetings in pretty places with limos and Photo Ops....good for the fancy hotels and cateerers

GNWT's picture

If every banker had a notion Like Ben Bernank-i-a Then every country'd be ZIPR-in' Just like the USA All over the Euro And down by Asia way Every banker is ZIRP-in' ZIRP-in' USA

GNWT's picture

The London Whale really knocked us out He left the Street behind And Jamie Dimon Is selling silver Cause Blythe Is - always - on - his - mind Take me to your gold vaults Way down south Corzine... he stole my daddy's farm

GNWT's picture

Benny Benny print faster faster Timmy Timmy print faster faster QE1, it's ok QE2, its allright QE3, that's Ok Qe4, Hey That Ok??? QE1,2,3,4,5,6,7 ZIRP-in' USA

Bansters-in-my- feces's picture


"fuck you jamie"

medium giraffe's picture

Hmm... maybe Sacks of Gold did go short as Italian banks crumble after all, although they are probably on both sides of the trade, JPM style (buy the derivs AND the credit swaps, I wish I'd thought of it). 

Gun to the head time for Germany again soon probably. Who will be at the front of the queue this time? Italy, France, Spain, Greece, Cyprus?

Full disclosure: I don't give a squid either way anymore...

pingpongthesecond's picture

Most of Europe's trade is internally right? Who cares about the fx rate. Everyone uses the same currency.