Dollar/euro exchange rate: The only thing we can predict is high volatility

- "The dollar/euro exchange rate has shown very high volatility since the beginning of the crisis, between 1.18 and 1.60."
- "We believe this will continue, as the exchange rate between the dollar and the euro depends on numerous factors that may play in opposite directions and are perceived one after another by the financial markets:
the growth prospects; they are poor in both cases, but the financial markets, which believed in markedly stronger growth in the United States, now have to revise this belief; the US external deficit and external debt: they will not disappear unless US households save more; the developments in the sovereign debt crisis in the euro zone: for the time being, the news is good (reductions in fiscal deficits, countries are able to issue), but uncertainties persist."
- "From May to July 2010, poor figures were published in the United States, the US trade deficit increased and the public debt crisis in the euro zone became less acute, leading to a rise in the euro. But there are now poor figures in the euro zone as well, and, in the future, bad news about certain budgets, perhaps a rise in the US household savings rate, which would be consistent with the changes in their wealth. Together, these factors account for our forecast of high volatility in the USD/EUR exchange until end-2011."

Natixis Flash Economics 430 20100901

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