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Euro "cursed" to go higher: Merk Investments CIO
April 22, 2013 / 2:47 PM / 5 years ago

Euro "cursed" to go higher: Merk Investments CIO

((For other news from Reuters Global FX Summit, click on www.reuters.com/summit/FX13))

Axel Merk, President and Chief Investment Officer of Merk Investments speak at the Reuters Global FX Summit in New York, April 22, 2013. REUTERS/Mike Segar

By Julie Haviv

NEW YORK (Reuters) - With the European Central Bank refraining from conducting a massive bond buying program as other central banks have done, the euro is “cursed” to go higher, Axel Merk, the president and CIO of Merk Investments said at a Reuters FX Summit on Monday.

“We think $1.40 is easily possible this year and over the next two years, over $1.50 is possible. And that’s mostly based on the weakness of all the other currencies,” said Merk, who is based in Palo Alto, California.

The euro last traded at $1.3034, down 0.1 percent on the day. It has fallen about 1.2 percent this year.

“The euro is cursed to become very very strong in this sort of environment. Over the next one to three years, I think the euro has to be substantially stronger as people go away from la-la land where they think the Fed will have a clean exit and then realize they can‘t,” he said.

The dollar last traded at 99.18 yen, down 0.3 percent on the day. It has risen around 14.3 percent this year.

“Japan’s yen is no longer the safe-haven it used to be,” he added.

Earlier this month the Bank of Japan announced an aggressive monetary stimulus plan to stimulate its economy, with plans to buy $1.4 trillion in bonds in less than two years.

Axel Merk, President and Chief Investment Officer of Merk Investments, speaks at the Reuters Global FX Summit in New York, April 22, 2013. With the European Central Bank refraining from conducting a massive bond buying program as other central banks have done, the euro is "cursed" to go higher, Merk said at the summit on Monday. REUTERS/Mike Segar

Bond buying, called quantitative easing (QE), is considered to be negative for a currency since it is tantamount to printing money and diluting its value.

Merk, who oversees about $750 million in assets, said the policymakers in Japan do not understand the dynamics have changed.

“They think the only thing they have to do is give the economy a good jolt and everything will be fine,” he said.

Axel Merk, President and Chief Investment Officer of Merk Investments, speaks at the Reuters Global FX Summit in New York, April 22, 2013. With the European Central Bank refraining from conducting a massive bond buying program as other central banks have done, the euro is "cursed" to go higher, Merk said at the summit on Monday. REUTERS/Mike Segar

The Federal Reserve has its own asset purchase program, under which it is buying $85 billion a month of bonds.

“One of the reasons QE hasn’t caused more damage is because it hasn’t worked. But let it work. Then you are going to have a major problem,” he said.

Merk has been very short the yen since November and has held a considerable long in the euro since August.

To be short a currency is a bet on its decline while the opposite holds true for holding a long position.

“The ECB is not going to pick a fight with Japan, which is on a mission to destroy their currency,” he said.

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Reporting By Julie Haviv; Editing by Chris Reese

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