Hans Redeker, who was hired as Morgan Stanley (MS)’s head of foreign-exchange strategy in March, said he plans to revise the bank’s euro forecast “substantially lower” on weak demand for European bonds and equities.
“Net flows into the longer-term bond segment are near historical lows and at odds with the current value of the euro” amid the Greek debt crisis, Redeker wrote in a research report dated yesterday. “European equity markets have lost ground. The relative underperformance compared to the U.S. market indicates that long-term capital flows should remain euro-negative.”
Morgan Stanley’s current estimates for the euro are that the 17-nation currency will rise to $1.52 by the end of the third quarter, then trade at $1.49 and $1.47 at the end of the fourth quarter and the first quarter next year respectively. “We will take these numbers substantially lower,” Redeker said in an e-mailed response to questions today.
The euro was 0.3 percent stronger at $1.4452 as of 8:50 a.m. in London.
“While short-term yield differentials correlate best with euro-dollar, we regard it as a mistake to ignore messages sent out by other market segments,” he wrote in the report. “Should nervous euro money-market investors turn around, the euro will fall.”
Morgan Stanley said on March 31 that it hired Redeker from BNP Paribas SA as managing director and global head of foreign- exchange strategy. The bank also hired Ian Stannard from BNP Paribas as head of European foreign-exchange strategy. Both will be based in London.
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