Forex Is Out Of Line With Yields -Citi

Forex Is Out Of Line With Yields -Citi

FX moves belie sovereign yields says Citi, as in its view yields are still punching above their weight but EUR weakens too much following S&P's downgrade of several euro-zone states on Friday. "EUR dropped about 1.5 big figures in the wake of the S&P announcement... but the downgrades do not seem to have much of a surprise element," says Citi. In the past, EUR typically weakened 0.3% following S&P euro-zone downgrades because the downgrades were anticipated, Citi notes. "This raises the question as to whether the FX move was exaggerated and if the greater responsiveness from EUR relative to that seen in other asset classes will be the rule moving forward." EUR/USD at 1.2671.