High Equity/FX correlation can help cheapen upside optionality: Barclays FX strategists highlight US exceptionalism is yet to run its course, creating upside rate risks for the dollar in Q1 2024, while Europe's subdued growth might pull EUR lower (see Not yet time to catch a falling dollar, 26 Nov 2023). The potentially weaker currency tends to support European earnings, all else equal. However, as shown in Figure 78, SX5E vs. EURUSD realised
correlation is near historical highs, likely due to a stronger dollar on the back of (uncomfortably) higher/rising US rates weighing on equities and vice versa. Should rates stabilise from here and EUR weaken, it may turn supportive for equities, making SX5E higher, EURUSD lower structures interesting.- Barclays FX Strategy

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