EUR: Energy crisis impacts FX financing – BNY

Energy Costs Put Pressure on Surplus Economies

Bob Savage, who leads Markets Macro Strategy at BNY, highlights that countries with current account surpluses—such as those in the Eurozone—are now facing renewed challenges due to increasing energy prices. Earlier this year, BNY anticipated these funding currencies would strengthen, but the surge in oil prices threatens to turn their surpluses into deficits. According to iFlow data, investors are boosting their EUR holdings or hedging, signaling worries that Europe may be hit hardest by rising energy expenses.

Export Surpluses at Risk

• BNY has pinpointed up to ten economies that maintain surpluses, largely thanks to their manufacturing exports.
• Despite these surpluses, each of these nations relies heavily on energy imports—a factor that has fueled their industrial growth.
• Drawing from the events of 2022-23, there is a real possibility that these economies could quickly shift from surplus to deficit if energy prices continue their upward trend.

European Currencies Under Scrutiny

European currencies like EUR, SEK, and CHF are seeing increased investor activity in the form of new positions or hedges. This reflects a widespread belief that Europe will be particularly vulnerable to escalating energy costs.

Market Sentiment and Global Rates

While risk aversion remains due to ongoing geopolitical tensions, the steady decline in equities and continued swings in commodity prices are having a diminished impact on global interest rates.

(This article was produced with assistance from an AI tool and subsequently reviewed by an editor.)