Euro Seen Falling 25-30% Just Before Any EMU Breakup: Deutsche
EUR/USD would fall by 25-30% to 80-75 cents just before any breakup in the EMU, George Saravelos, a strategist at Deutsche Bank, said in a note to clients.
- The bank says percentage calculated under “conservative assumptions”
- In the event of a breakup of the euro zone, large-scale capital flight would be likely as the euro loses its reserve status and private capital inflows are unwound too
- Capital controls, re-denomination of paper money and the unwind of complex cross-border exposures would cause a material negative productivity shock
- Inflation would likely accelerate in the periphery as central bank credibility is lost and policy is pushed toward eroding the real value of debt
- The near-term drop could be even bigger if capital flight is large
- The only silver lining would be that the Fed has much greater space than the ECB to ease monetary policy offsetting part of euro weakness
- Baseline scenario is that the ECB would do whatever it takes to avoid capital controls, which would likely spell the end of the euro zone
- NOTE: JPMorgan Sees Le Pen’s New Franc Falling by Up to 20 Percent