We have often noted how well the US-German 2-year interest rate differential tracks the euro-dollar exchange rate. This Great Graphic, we composed on Bloomberg, shows the dollar against the euro in white and the 2-year interest rate differential between the US and Germany in yellow.
For our purposes here, we inverted the euro-dollar exchange rate from how it is traditionally quoted so to be more intuitively in line with the rate differential. As the US premium over Germany rises so too does the dollar rise against the euro. The opposite is also true. In recent weeks the US premium over German has been halved, and the greenback has lost ground against the euro.
There may be short-term discrepancies, but the relationship remains uncanny. The constructive dollar outlook we outlined here would seem to imply that the US premium over Germany would rise in the coming sessions.
Great Graphic: US-German 2-year Rate Differential and the Euro Revisited
Reviewed by Marc Chandler
on
June 10, 2013
Rating:
Reviewed by Marc Chandler
on
June 10, 2013
Rating:
