© Carsten Brzeski
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It is a very difficult question. On the one hand, it is temporary to the extent that the whole situation was mainly driven by ‘Brexit'-related fears in financial markets and the fact that the ECB is still in the market, obviously. Nevertheless, the main driver of pushing yields below zero was the ‘Brexit'. We will have to wait until the results of the referendum are known to see whether the slump was only temporary. To my mind, if we get a ‘remain' vote, chances that the yields will be pushed slightly above zero again are extremely high.
European stocks slumped to their lowest levels on last Monday amid ‘Brexit' fears. In your point of view, if the UK votes next week to leave the EU, what impact will it have on German economy?
If the UK was to vote in favour of a ‘Brexit' today, we will immediately get another round of financial market turmoil. This would also mean weaker sentiment indicators and probably through this kind of sentiment we would also see a slight weakening of the economic growth in Germany. The more interesting question would be how long actually the negotiations about the ‘Brexit' will take. What I believe is that on the June 24, no matter what is going to happen, the UK will still be a member of the European Union. Thus, the direct macro-economic impact on Germany will also depend on the speed of the negotiations. Therefore, if or when the UK really leaves the EU, this could cost Germany around 0.3% of growth.
What are your forecasts for EUR/USD and EUR/JPY for the rest of 2016?
We do expect to see quite stable performance of both EUR/USD and EUR/JPY currency pairs. There is going to be moderate fluctuation on both sides, though in the current environment it looks like there will be only very few if any rate hikes coming from the Fed, while the ECB will continue with the QE. Thus, we will only see a marginal recovery, therefore the EUR/USD will probably fluctuate somewhere around $1.10-1.12, where we are right now. The same performance will be expected from the EUR/JPY currency pair.