The ECB is pursuing a considerably more restrictve monetary policy than the Fed. In our view the trouble in the euro area will grow worse over the coming period. This could widen the spreads between bond yields in the weak and the strong euro countries. The 3-month EURIBOR may well rise from near 1.05% towards 1.5% in the coming months as the EUR swap spread widens from 32 towards 50 basis points. In the near future, the German 10-year yield (now around 2.4%) may drop slightly due to the flight to safety as a result of mounting problems in the struggling euro states.
Want to read out latest EUR/USD report in full? Visit www.ecrresearch.com and sign up for a free trial.
