EUR is a funding currency -explained – BNP

By FXStreet FXStreet (Guatemala) – William De Vijlder, analyst at BNP Paribas explained that the strong decline of equity markets in China has caused a decline of the Euro Stoxx index but also a strengthening of the euro against the US dollar.

Key Quotes:

“Whereas the long term relationship between European equities and the euro is positive, this year the correlation has turned negative.”

“This can be explained by the use of the euro as a funding currency for carry trades.”

“If risk rises as witnessed by a decline of equity markets, risk appetite goes down and speculative currency positions are scaled back. This causes the euro to rise.”
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Source:: FX Street