Do not disregard the impact forex can have on the performance of your portfolio. Currency exposure is as much as investment decision as any other asset class you hold in your portfolio. To prove my point, take a look at the performance of the FTSE 100. Year-to-date it is up 12 per cent. Looking at it by itself, an investor would think he/s would be making a killing on this investment decision.

However, this would only be true if your base currency was the Sterling. For Maltese investors whose base currency is the Euro, one would also need to take into account the depreciation in the value of the Sterling to see whether the FTSE trade was a successful one or not.

Infact, year-to-date, the Sterling fell by 21 per cent against the Euro, resulting in a much bigger loss for Maltese who invested in the FTSE 100.


One of the most followed currency exchange in the market is the EURUSD which at the moment is trading at $1.09,24 to the Euro. From its lowest level this year (beginning of May), the Dollar has strengthened by over five per cent against the euro.

However, it is also true that we saw large swings throughout the year in the value of both currencies. There were times like in the case of Brexit when the Dollar rose against the Euro due to the fact that the turmoil within the European Union questioned the sustainability of the Euro going forward.

On the other hand, during the same year, we saw a weakening of the Dollar when the Federal Reserve gave an indication that it was in no hurry to raise rates and wait to see an improvement in economic data before raising rates.

However, investors are more interested in knowing where the EURUSD is heading from here. Although it is also true that to understand where the EURUSD is going, an investor needs to understand what cause shifts in either currencies throughout the years.

Five arguments in favour of a stronger euro

  1. If we continue to get positive economic data out of the eurozone and the ECB in its December meeting gives an indication that it will start reducing its bond buying program after March 2017, we expect to see a strengthening of the Euro.
  2. The banking sector in Europe is going through a rough patch and it may have to repatriate foreign assets, supporting the Euro currency.
  3. The US postpones its December rate hike to 2017 or increases rates in its December meeting but has no intention to increase rates at a fast rate in 2017.
  4. Donald Trump wins the US elections and creates uncertainty about US growth.
  5. Option markets are reversing. The premium in options markets for one-month puts over calls shrunk to its smallest level since August on Wednesday.

Five arguments in favour of a weaker Euro

  1. The ECB indicates that data is not strong enough to warrant tapering or termination of the existing quantitative easing program and the ECB extends the program post March 2017.
  2. The referendum on constitutional reform being held in Italy on December 4 does not pass and Renzi resigns from his post as Prime Minister, resulting in further uncertainty in the European Union.
  3. A European bank (such as Deutsche Bank) publicly announces that it has liquidity problems putting further pressure on the whole banking sector and creating a Lehman like moment.
  4. The Federal Reserve increases rates in December and indicates that it plans to continue doing so in 2017 as the US inflation has moved towards the Fed’s target of two per cent.
  5. We continue to see a steepening of the US yield curve in the US as longer dated yields continue to rise in anticipation of a rate hike in the US, compared to a rather flat yield curve in Europe.


If equity and bond markets are difficult to predict, let alone foreign currency movements. As indicated above, there are various points which could move the currency in either direction.

However, as things stand today, I am of the view that the arguments in favour of a weaker euro (hence a stronger dollar) outweigh the opposing arguments.

My opinion is that the Fed will raise rates in December on the back of continued positive data out of the US economy and the US elections that will see Hilary Clinton sworn is as the new US President, creating further stability.

On the other hand, I also expect data out of the Eurozone to continue to improve and the ECB to announce tapering of its current bond buying program post March 2017.

My arguments above are also based on the fact that data coming out of Emerging Markets is also improving and although a stronger Dollar works to their disadvantage, the increase in oil price and improvement in global sentiment helps abeit this problem, at least for the short term.

Disclaimer: This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.



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