• EUR/USD is undervalued relative to the current economic data and monetary policies, while the long-term outlook is clearly positive. The war in Ukraine and the coronavirus pandemic are both forcing a rethink in regards to fiscal policy -one that can break the deadlock which has left the ECB as the sole source of economic support over the past decade. A more active fiscal policy and an escape from super-low inflation could allow for a retreat from the negative rates that have anchored the currency. The real effective euro exchange rate has been almost 10%lower on average during the past decade than it was in the one prior to it,”
• “In a post-war world,EUR/USD is more likely to trade in a 1.10-35 range than the 1.03-1.26 one it has been in since the start of 2015.Despite that,we think the euro is virtually unbuyable because the tail risks from the war are so big.The EUR/USD could fall by as much in a few days if gas supplies were to be cut off,as it would rise if the war were to remain in a stalemate at the end of six months.”

Any efforts to support the euro via policy or even verbal interventions are unlikely, according to a report citing three ECB sources.

The falling currency is making it tough for the ECB to get inflation under control and today’s +7.9% German CPI report highlights just how far off base they are. But three ‘ECB insiders’ cited by Econostream Media say the currency won’t be a lever, even if the euro falls below parity.

The euro is up 25 pips to 1.0752 but has weakened a quarter-cent in the last half hour.

Bloomberg (link is gated) carry a report with comments from Eisuke Sakakibara, who was Japan’s vice finance minister from 1997-1999 and thus directed multiple rounds of yen FX intervention. He was gvien the nickname Mr Yen.

Sakakibara is now a professor at Tokyo’s Aoyama Gakuin University. He spoke in an interview on Bloomberg TV:

• “Market expectation is that toward the end of the year, it will go between 140 and 150 — so it is quite possible that the yen would reach that level,”

The report goes on:

• The yen’s plunge has sparked verbal intervention by Japanese officials to talk up the currency, though that has done little to effectively halt its slide. It is unlikely that the authorities will intervene on a bigger scale because there’s still a reasonable explanation for the currency’s weakness, Sakakibara said.
• “This has happened because of the difference of the monetary policy,” he said. “I don’t think that neither the Bank of Japan or Japanese government are worried about the current state of affairs with regards to the exchange rate.”