July 3, 2020 / 1:27 PM / a month ago

Euro to head towards $1.20 if EU recovery fund agreed, bond spreads tighter- Citi Private Bank

LONDON, July 3 (Reuters) - The euro could rise towards $1.20 over the next six months and peripheral bond yields spreads in the euro area could narrow further still if the European Union can reach agreement on a recovery fund, Citi Private Bank’s Jeffrey Sacks said on Friday.

Talks over a European recovery fund to help revive economies hardest hit by coronavirus, notably Italy and Spain, have boosted hopes of solidarity in the currency bloc and for a potential swift economic rebound — lifting European assets in recent months.

“We think the euro will edge slightly higher over the next six months partly because of the acceptance of the EU recovery fund, not quite as high as $1.20 but moving in that direction,” Sacks, EMEA head investment strategy said during a presentation on Citi Private Bank’s mid-year outlook.

“Peripheral bond spreads will narrow further, they have narrowed in the last six weeks and we think they could narrow to the region of 70-90 basis points because the risks attached to Italy and Spain will fall once they get fiscal transfers from the core of Europe.”

The euro was trading at around $1.12 on Friday, having risen more than 5% since March. Italy’s closely-watched 10-year bond yield gap over benchmark Germany is at around 174 bps, having briefly widened to more than 300 bps in March when coronavirus-panic gripped markets. (Reporting by Dhara Ranasinghe, Editing by Iain Withers)

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