Buy Euro-Dollar says LGT
- Written by: Gary Howes
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LGT Bank thinks now is the time to go long Euro against the Dollar as the U.S. currency is nearing its peak.
The call comes following a significant decline in the Euro to Dollar exchange rate (EUR/USD) in the wake of the U.S. elections.
"We are also reducing our Overweight in US equities, which allows us to reduce our U.S. dollar exposure and take partial profits, as well as diversify our currency exposure," explains Gérald Moser, CIO & Head Investment Services Europe.
Liechtenstein-based LGT Group is the largest royal family-owned private banking and asset management group in the world.
Strategists at the bank are reassessing the investment landscape following the Trump win and say the policy mix should maintain a risk-on approach to global equities.
The Dollar has been another outright winner of recent developments, but Moser says now is the time to reduce U.S. Dollar positioning.
"We expect spreads to widen slightly. The U.S. dollar appreciated briefly after the US election result, but we expect a reversal soon," he says, before adding:
"We therefore favour a long position in the euro versus the greenback over the medium term."
Trump's second term is expected to bring with it tax cuts, spending cuts and tariff hikes.
The default market assumption is that this is pro-Dollar and that 2025 will see further outperformance.
Many big investment bank names such as JP Morgan and Deutsche Bank think Euro-Dollar will fall to parity and below under this regime.
Investment bank EUR/USD consensus forecasts: The end-2024 and 2025 guide from Corpay has been released. Featuring the median, mean, high and low points forecasted by over 30 investment banks. Please request a copy here.
However, LGT thinks Trump will also boost Europe's economy as U.S. economic outperformance bolsters demand.
"For Europe, however, a scenario with a stronger U.S. economy, a currently strong U.S. dollar and potentially looser German fiscal policy should outweigh the risks of new trade tariffs," explains Moser.
The recent spell of Dollar strength came after Trump’s election victory and a renewed sense of optimism about his economic policies. This boost was also supported by monetary policy divergence, with the Fed maintaining a relatively hawkish stance compared to other major central banks.
"We believe this US dollar upward momentum is unsustainable and will soon reverse. We therefore adjust our recommendation and now favour a long position in EUR versus USD, reflecting our expectation that the greenback is nearing a peak," says Moser.
Elsewhere, LGT is upgrading eurozone equities to "Overweight" and reducing the "Overweight" on U.S. equities.
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