November 26, 2014

The future of the World main currencies: expert’s point of view

Our exclusive partner Exante arranged a series of interviews with professional traders and market analysts, including the top TradingView authors. Make sure you don’t miss it!

This week Gita Evele, PR manager at online broker Exante, spoke to Giovanni Pozzi, Partner and head of FX at JCI Capital. Mr. Pozzi has been active in the FX markets since the early 90’s. He has held senior positions as market maker and proprietary trader at American Express Bank, SBC Warburg and UBS. Prior to his work at JCI Capital, Mr. Pozzi was CEO at JW Partners, a research and advisory firm focusing exclusively on FX.

The Eurozone is facing various issues – stubbornly high unemployment at 11.5%, sluggish GDP growth of 0.1% in Q2 and inflation at 0.4% reaching the deflation territory. While the Fed had to implement three rounds of QE in the US, many argue that it is now time for QE in the Euro area. Do you believe it is the solution and why do you believe Draghi has been refraining to implement it so far?

Eurozone issues are very serious and can be summarized as a big competitiveness issue. Competitiveness in this case means internally for Europe to survive with lower margins, and externally in terms of being able to export well despite competitors from EM as well as the rest of the developed world. If Europe is not careful enough not to lose too much competitiveness, then these issues will have a serious impact socially. The key way to smoothen this impact is a strong ECB quantitative easing support; it is taking long because of the political and substantial opposition from Germany. Another reason is that Europe wants to make sure to take into account both good and bad consequences from the experience of US QE. Europe is trying to make something more sophisticated than we witnessed in the US, not just pumping liquidity, but pumping liquidity and understanding where this will end up as well as ensuring the effectiveness of the transmission mechanism. And it is not easy for a region which is not really unified in terms of anything except for the Central Bank.

Nonetheless, QE will have to come, and the time is not far. Otherwise, the Euro is still at risk of falling apart due to the fact that the political and social tensions in the single countries will become too strong.

At the same time, countries like Italy will have to work hard on reforms, while taking advantage of ECB’s help to fight deflation as well as a deep and extended recession. The Euro depreciation will be key for competitiveness and reflation, and a clear consequence of ECB’s QE measures.

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