LONDON- Big speculative flows and not concerns about a worsening economic outlook explain the euro’s slide to a five-year low below $1.05 this week, a study by BNP Paribas showed.
BNP Paribas strategists said the euro’s fall was driven primarily by large speculative flows with volumes centered around so-called “daily fixings” for currencies.
This is an unusual development and suggests some investors could be taking out large positions on the direction of the single currency, which is down over 4.5 percent versus the dollar in April and set for its biggest monthly drop since 2015.
“Our analysis has shown that flows rather than fundamentals may have been the key driver behind the euro’s drop over the last week as around two-thirds of the decline was focused around the fixings,” said Alexander Jekov, an FX strategist at BNP Paribas in London.
The global $6.6 trillion a day currency markets operate 24 hours a day, five days a week, with no equities-style closing price to use as a reference point. Therefore, many investors use a handful of fixes as the daily benchmark rate for their currency trades to mark their portfolios.
London’s so-called 4pm fix, run by Refinitiv, is the most commonly used benchmark in foreign exchange. The fix is a five-minute period of trading used to calculate daily exchange rates that underpin a huge range of transactions. – Reuters
