Latest news with #AthanasiosVamvakidis
CNBC
30-04-2025
- Business
- CNBC
Sterling to rise to pre-Brexit levels, Bank of America says
As the U.S. dollar falters, one currency could be a major beneficiary: the British pound , which Bank of America's Athanasios Vamvakidis says is on track to return to its pre-Brexit value. Vamvakidis, global head of G10 FX strategy at BoA, forecasts that sterling will rise above $1.50 in 2026. The pound has not traded at those levels against the greenback since the start of 2016 — the year the U.K. voted to leave the European Union . The British currency, which plummeted in the immediate aftermath of the EU referendum, has failed to fully recover in the nine years since the vote was held. In early trade on Wednesday, sterling was down 0.1% against the U.S. dollar at around $1.34. Since the beginning of the year, the British pound has gained around 7% against the dollar, which has seen a broad sell-off amid global concerns around U.S. President Donald Trump's tariffs regime . According to Bank of America's Vamvakidis, sterling has more upside ahead. His team's base case is that the pound will reach $1.43 by the end of 2025 — that's a gain of around 6.8% from current levels – before rallying to $1.54 by the end of 2026. That would mark a 15% increase from today's prices and the first time the British currency has exceeded the $1.50 level since the 2016 EU referendum. "We believe U.S. trade policies give more incentive to the EU and the U.K. to have closer relations. They've been envisioning a Brexit reset, but before this year, both sides were not as ambitious," Vamvakidis told CNBC Pro on a call. "Now you can argue it's a win-win situation for them to improve trade relations in particular." Several other factors are also influencing Bank of America's outlook for sterling: the U.K.'s services-oriented economy, which insulates it somewhat from U.S. tariffs on goods; projections for four interest rate cuts from the Bank of England this year; lower reciprocal tariffs being aimed at the U.K. than many other countries; and higher economic growth forecasts for Britain than the EU. Bank of America expects the U.K. economy to expand by 1.1% this year and 1.3% in 2026, compared to 0.8% GDP growth in the EU this year and 1% next year. As a result of the regional macroeconomic picture, Bank of America also expects sterling to rise in value against the euro. Vamvakidis is forecasting that the euro will fall around 3.5% from current exchange rates against sterling to hit £0.82 by the end of the year. He told CNBC that for his baseline to be wrong, the Trump administration would need to "pivot across the board" on trade policy, migration and fiscal policy. "[It would take] a full U-turn back to conventional policies, which I think is unlikely," Vamvakidis said. "Things may end up somewhat better than initial policy announcements, but it's unlikely to go back to where we started. If we do [see a pivot], the dollar will strengthen, but I don't think it will strengthen back to where it was." Bank of America isn't the only big-name investment bank forecasting further upside for the pound. Analysts at Deutsche Bank Research are expecting the currency to reach $1.37 by the end of 2025 and $1.43 in 2026, with even more upside to be realized in the subsequent two years, when the lender's analysts see sterling hitting $1.45 – a level also not seen since before the Brexit vote. Strategists at Goldman Sachs, meanwhile, said last week that the bank was taking a "cautiously optimistic" view on sterling, driven by the U.K. being less vulnerable to tariff shocks than its EU neighbors and the wider strengthening of European currencies. Goldman Sachs's strategists expect sterling to trade at $1.39 against the U.S. dollar by the end of the year.
Khaleej Times
31-03-2025
- Business
- Khaleej Times
Shrinking US risk premium to divert more cash into Europe
The premium investors enjoy from holding US government debt over that of Germany is set for its biggest quarterly drop in years, with tectonic fiscal policy shifts on both sides of the Atlantic expected to shrink this gap further, luring more cash to Europe. The spread between US and German 10-year bond yields reflects the difference in how much it costs each government to borrow over the long term. It has fallen by 62 basis points (bps) since the start of the year to 158 bps, and is set for its biggest quarterly fall since the global financial crisis in 2008, excluding moves during the pandemic. The gap reflects the divergence in interest rates and economic outlooks and is crucial for both investment flows and the euro/dollar exchange rate, which in turn affects trade balances, inflation levels, and corporate profits. Germany in March approved plans for a massive spending splurge, jettisoning decades of fiscal conservatism, which sent bond yields soaring. Since taking office on January 20, US President Donald Trump, who promised to enact huge tax cuts, has been rolling out tariffs on major trade partners, as well as slashing the federal government workforce and starting the deportations of migrants he promised on the campaign trail. US economic data is starting to falter and investors are worried about a slowdown in growth, prompting a fall in Treasury yields. "Fiscal policy outlook is now the main reason behind the current divergence between the euro area and the U.S.," said Athanasios Vamvakidis, global head of forex strategy at BofA. Some analysts and investors believe the US/German spread, which is narrowing as German yields rise, could fall below 100 bps — a level not seen with any regularity since 2013. "A recession should be a scenario when the Treasury yields collapse, and the spread goes to levels seen between 2000 and 2009 when it averaged 30 bps," said Padhraic Garvey, regional head of research Americas at ING, who sees the spread at below 100 bps, possibly at 75 bps. Garvey said a recession is not ING's base-case for the US economy. He sees Bund yields at 3.00-3.50 per cent and said US 10-year yields are close to neutrality at 4.3 per cent. US Treasury Secretary Scott Bessent didn't rule out such a scenario in a recent interview. "Consumers feel threatened by possible layoffs not just in the government but also in the private sector," said Thierry Wizman, global forex and rates strategist at Macquarie. "Companies suffer from the uncertainty about U.S. tariffs. This backdrop is consistent with lower US yields," Wizman added, arguing that 'it is not inconceivable' to see a spread below 100 bps. Bid for bunds?ID FOR BUNDS? Barclays thinks Bund yields could test three per cent, up from 2.8 per cent now, if tariff risks do not materialise or are less intense than feared. US 10-year yields are around 4.37 per cent. Higher yields tend to attract more capital from investors seeking better returns for their cash. The shift in the US/Bunds spread has supported the euro, which has gained four per cent in the three months to March, its best quarterly performance since the fourth quarter of 2023. European stocks are set for their best first-quarter relative to US stocks in a decade. 'Interest in Europe was amazing among US investors,' said Reinout De Bock, strategist at UBS after a trip to the US last week to meet clients. 'Since the euro crisis, I have not seen so much interest in Europe on a New York visit, but clients are struggling to gauge to what extent it is a growth-positive story for Germany versus other (euro area) countries,' he added. Vasileios Gkionakis, senior economist at Aviva, meanwhile, says the link between nominal GDP growth and long-term yields could lead Bunds to 3.5 per cent, with a potential overshoot to four per cent. However, higher government investment will stimulate growth and productivity given the boost in the public capital stock. That could strengthen the safe-haven appeal of German Bunds, which might in turn help limit a larger increase in yields and even push them lower.
Reuters
31-03-2025
- Business
- Reuters
Shrinking US risk premium to divert more cash into Europe
March 31 (Reuters) - The premium investors enjoy from holding U.S. government debt over that of Germany is set for its biggest quarterly drop in years, with tectonic fiscal policy shifts on both sides of the Atlantic expected to shrink this gap further, luring more cash to Europe. The spread between U.S. and German 10-year bond yields reflects the difference in how much it costs each government to borrow over the long term. here. Advertisement · Scroll to continue Report This Ad It has fallen by 62 basis points (bps) since the start of the year to 158 bps, and is set for its biggest quarterly fall since the global financial crisis in 2008, excluding moves during the pandemic. The gap reflects the divergence in interest rates and economic outlooks and is crucial for both investment flows and the euro/dollar exchange rate, which in turn affects trade balances, inflation levels, and corporate profits. Germany in March approved plans for a massive spending splurge, jettisoning decades of fiscal conservatism, which sent bond yields soaring. Since taking office on January 20, U.S. President Donald Trump, who promised to enact huge tax cuts, has been rolling out tariffs on major trade partners, as well as slashing the federal government workforce and starting the deportations of migrants he promised on the campaign trail. U.S. economic data is starting to falter and investors are worried about a slowdown in growth, prompting a fall in Treasury yields. "Fiscal policy outlook is now the main reason behind the current divergence between the euro area and the U.S.," said Athanasios Vamvakidis, global head of forex strategy at BofA. Some analysts and investors believe the U.S./German spread, which is narrowing as German yields rise, could fall below 100 bps - a level not seen with any regularity since 2013. "A recession should be a scenario when the Treasury yields collapse, and the spread goes to levels seen between 2000 and 2009 when it averaged 30 bps," said Padhraic Garvey, regional head of research Americas at ING, who sees the spread at below 100 bps, possibly at 75 bps. Garvey said a recession is not ING's base-case for the U.S. economy. He sees Bund yields at 3.00-3.50% and said U.S. 10-year yields are close to neutrality at 4.3%. U.S. Treasury Secretary Scott Bessent didn't rule out such a scenario in a recent interview. "Consumers feel threatened by possible layoffs not just in the government but also in the private sector," said Thierry Wizman, global forex and rates strategist at Macquarie. "Companies suffer from the uncertainty about U.S. tariffs. This backdrop is consistent with lower U.S. yields," Wizman added, arguing that 'it is not inconceivable' to see a spread below 100 bps. BID FOR BUNDS? Barclays thinks Bund yields could test 3% , up from 2.8% now, if tariff risks do not materialise or are less intense than feared. U.S. 10-year yields are around 4.37%. Higher yields tend to attract more capital from investors seeking better returns for their cash. The shift in the U.S./Bunds spread has supported the euro , which has gained 4% in the three months to March, its best quarterly performance since the fourth quarter of 2023. European stocks are set for their best first-quarter relative to U.S. stocks in a decade. 'Interest in Europe was amazing among U.S. investors,' said Reinout De Bock, strategist at UBS after a trip to the U.S. last week to meet clients. 'Since the euro crisis, I have not seen so much interest in Europe on a New York visit, but clients are struggling to gauge to what extent it is a growth-positive story for Germany versus other (euro area) countries,' he added. Vasileios Gkionakis, senior economist at Aviva, meanwhile, says the link between nominal GDP growth and long-term yields could lead Bunds to 3.5%, with a potential overshoot to 4%. However, higher government investment will stimulate growth and productivity given the boost in the public capital stock. That could strengthen the safe-haven appeal of German Bunds, which might in turn help limit a larger increase in yields and even push them lower.
