Currency Impact Report
FX Impact: Draghi Propels Euro Higher
September 10, 2012
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Our currency impact data covering last week is a sea of green, as U.S. investors benefited from comments by European Central Bank Mario Draghi suggesting the ECB would buy bonds to keep sovereign debt yields throughout the eurozone from reaching dangerously high levels.
At the same time, IndexUniverse ETF Analyst Ugo Egbunike told IndexUniverse.com Managing Editor Olly Ludwig in their weekly chat that with investors all but certain QE3 from the Federal Reserve is on the way, returns for U.S. investors got a shot in the arm from dollar weakness.
Ludwig: Looking at the past week, there’s a lot of green ink here.
Egbunike: There’s a lot of green—a lot of confidence. Confidence has started to build, especially with regard to the euro. Essentially, what we’re seeing there is that Mario Draghi has stated that the European Central Bank is ready to go into unlimited bond buying in order to bring some confidence back.
Ludwig: So, this is as close as the ECB will get to what the Fed has done or what the Bank of England has done?
Egbunike: Exactly. They have essentially made it clear they will act as a sovereign central bank would, and the result is that we’ve seen huge positive gains as a result of currency exposure for all U.S. investors in Europe. So you see it across the board, from Austria to France to Germany to Greece. Investors, on average, gained about 1.6 percentage points more than their European counterparts in the same countries.
Ludwig: So, did that confidence you described spread to different parts of the global economy?
Egbunike: Yes, it did bring some sort of enhanced confidence to other parts of the equity markets. So, we definitely saw some increased returns after they took a beating over the past couple of days. In the U.S., we were up 2.5 percent; Canada was up nearly 4 percent for U.S. investors, with a currency impact of 1 percent.
Even in Latin America we saw huge gains: from 2.2 percent in Brazil to 3.6 percent in Mexico. So, positive gains were registered across the board. It’s definitely a huge move, and not necessarily what a lot of people were expecting would happen immediately after the Europeans came back from vacation, but it was definitely something that was very welcome.