EUR meets several safe haven criteria - Rabobank

Jane Foley, Senior FX Strategist a Rabobank suggests that the USD fails to meet several of the criteria of a safe haven and would characterise the USD’s past relationship with such flows as merely flirtatious. 

Key Quotes

“Undeniably treasuries remain a choice safe haven asset.  Last week demand for 3yr and 5yr US debt in particular saw the belly of the treasury curve react to increased geopolitical tensions.  However, since this could represent a straight move from US stocks to US bonds, it is not clear whether there will be always be a USD transaction linked with such a move.  Given the current disarray in the White House, the USD’s credentials as a store of value are further undermined.” 

“Due to Europe’s geographical position away from the US and Asia it can be argued that Bunds may be more favoured than treasuries as a safe haven asset currently.  Even though it is not clear whether any bid to Bunds on the back of safe haven demand would involve a currency transaction, it can be argued that on paper the EUR ticks more safe-haven boxes than the USD.  As Figure 5 illustrates the US lags the Eurozone and in particular Germany in terms of its currency account position.  The US also lags Germany in terms of its budget position.”

“Although the EUR can claim decent safe-haven credentials, the fact that it was in the throes of a debt crisis very recently indicates that it still cannot claim the credibility to make it a true store of value.  That said, given this year’s rotation back into the EUR and the widespread view the single currency’s fundamentals have improved this year relative to USD, we would expect the EUR to hold its ground well in any re-ignition of US.-North Korea tensions.  On a 12 mth view we expect EUR/USD at 1.20.”