Betting on the euro
Themis Themistocleous, UBS
Is it the business of wealth managers to speculate on the fall in currencies – and if so, what is the most prudent way to do it?
UBS Wealth Management recommends an overweight position in the dollar versus the euro, forecasting the euro will fall from $1.07 in mid-April to $1.02 over the following three months, as expectations of a US rate hike raise the greenback’s value.
But there are strict views about how to speculate on the euro’s further fall. “Our preference is to keep currency bets separate from any investments in asset classes. You should always take your currency bets separately,” says Themis Themistocleous, head of the UBS European Chief Investment Office in London.
Our preference is to keep currency bets separate from any investments in asset classes. You should always take your currency bets separately
He thinks this enables investors to make better decisions, by making criteria for entering or exiting each investment more clear-cut. Euro-based investors should hedge the currency exposure of any US equity or fixed income investments, says Mr Themistocleus.
Despite the possibility of further euro falls, some private banks steer clear of speculating on whether it is a good idea to place direct bets on the euro’s value over the coming year.
ABN Amro Private Bank, for one, does not recommend buying currencies on spot. “It’s very unpredictable, so we want the triggers for investment to be based on reasons other than pure currency expectations,” says Amsterdam-based chief investment officer Didier Duret.
In the short term the euro may well not fall at all, he says, adding the euro is currently stuck in a trading range of $1.05 to $1.10, because of the unlikelihood of immediate surprises about monetary policy on either side of the Atlantic. Instead, he likes more indirect speculation, recommending euro-based investors who form the majority of the private bank’s client base, to invest in a well-diversified, international portfolio, without hedging currency risk.
However, bankers at Julius Baer remain wary of speculating on the fall of the euro at all because of a view that, although this may continue, the bulk of the slide has already happened.
“Would I recommend an investor jump on the trend of the falling euro? I would be cautious, because the trend is quite old,” says the bank’s head of currency research, David Kohl. In coming months, he believes, the fall of the euro will start to reach its limits. Largely for this reason, he thinks eurozone investors should fully hedge currency exposure of their US bond investments.
