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Sustainability is not only a socio-political imperative. For FERI, it also includes a clear commitment to shared social responsibility as a financial services provider. This is why FERI places the sustainable development goals (SDGs) defined by the United Nations General Assembly (UN) at the forefront of sustainability considerations in all its investment solutions and advisory services. 

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FERI Economics Update August 2020 - Euro with air on top

Bad Homburg, 08/03/2020
by Axel D. Angermann, FERI
  • Current appreciation is mainly due to the weakness of the dollar
  • EU agreement on reconstruction programme contributes to the appreciation of the euro
  • Fair exchange rate of 1.29 USD/EUR comes into sight

The significant appreciation of the euro in recent days is primarily a weakness of the dollar and as such is by no means surprising: traditionally, the dollar appreciates in times of crisis due to its function as a global reserve currency. If the economic prospects improve - and this is precisely what is currently happening as the industrialized countries bottom out - the same logic leads to a devaluation of the dollar, which is then no longer in such high demand as a crisis currency.

Doubts about the dollar

The Fed's monetary policy and US fiscal policy are also contributing to the current weakness of the dollar. Within a few months, the Fed has expanded its balance sheet by nearly $3 trillion. By contrast, the slight correction in recent weeks is hardly significant, especially since the Fed has already announced that it will continue to buy securities. In any case, the US budget deficit this year is more than 15 percent of GDP. This deficit could even rise above 20 percent of GDP, should further fiscal aid for distressed households follow. In view of the gigantic government debt mountain, it seems increasingly likely that the Fed will keep interest rates very low in the long term in order to secure the long-term financing of this debt. All this is likely to make the US more critical than ever of its role as the undisputed economic leader in the world, and in particular of the dollar's role as a reserve currency, and this is exactly what investors in the currency markets are doing. The fact that there are still hardly any alternatives to the dollar sets limits on the devaluation potential of the American currency for the time being and will prevent an uncontrolled crash.

EU reconstruction programme also supports the euro

The current appreciation of the euro is also being helped by the EU's agreement on a European construction programme. In fact, the enormous sum of 750 billion euros of EU funds should contribute to economic recovery in Europe. However, the negotiations also revealed deep rifts between the member states, and the question of the extent to which these funds will be used to improve the long-term competitiveness of individual countries and the EU as a whole remains open for the time being.

All in all, too much euphoria does not seem appropriate in view of the strength of the euro, because a rapid and significant appreciation of the euro will worsen the price competitiveness of companies abroad. Now, of all times, as the consequences of the lockdown from the first half of the year are gradually being overcome, currency-related burdens and the resulting losses in exports are rather unwelcome.

On the way to a fair exchange rate

The fundamentally justified exchange rate of the dollar to the euro on the basis of purchasing power parities is around 1.29 USD/EUR. A further appreciation of the euro up to this level would therefore not be an exaggeration and appears a realistic scenario in view of the fact that exchange rate changes often occur quickly and abruptly. This trend would be interrupted or reversed if the pandemic situation were to deteriorate further, with new significant restrictions on economic activity: In all likelihood, the dollar would then once again be in demand as a safe haven currency for uncertain times.


About Axel D. Angermann

As Chief Economist of the FERI Group, Axel D. Angermann analyses the economic and structural developments of all markets that are important for asset allocation. This data forms the basis for the strategic orientation of FERI's asset investments.

Angermann has been responsible for the analyses and forecasts prepared by FERI for the overall economy and individual sectors since 2008. He joined the company in 2002 as an industry analyst. His professional career began at the Max Planck Institute for Economics and the German Chemical Industry Association. Angermann studied economics in Berlin and Bayreuth.


About FERI

Founded in 1987 and headquartered in Bad Homburg, Germany, the FERI Group has developed into one of the leading investment houses in the German-speaking area. FERI offers tailor-made solutions for institutional investors, family assets and trusts in the following areas:

The FERI Cognitive Finance Institute was formed in 2016. It is the strategic research centre and creative think tank of the FERI Group. The Institute focuses on innovative analyses and the development of methods for long-term oriented economic and capital market research. 

FERI and MLP currently have assets of EUR 39.2 billion under management. A total of EUR 8.5 billion of these assets are alternative investments. The FERI Group is headquartered in Bad Homburg and has offices in Dusseldorf, Hamburg, Luxembourg, Munich, Vienna and Zurich.



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Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
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presse@feri.de

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Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

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D-61348 Bad Homburg

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