Forex Flash: Eurozone debt crisis in remission – UBS

The imbalances between Eurozone countries have been in focus over the past two years, as though current account strains would somehow blow the currency union apart. Now, with the sovereign debt crisis in remission, attention has shifted instead to the Eurozone as a whole and its relationship with the wider world.

According to Research Analyst Gareth Berry at UBS, “Investors have not failed to notice the Eurozone's widening current account surplus, and today the ECB is due to publish December's data. Received wisdom suggests a surplus should help boost the euro. We mostly agree – a surplus is indeed a healthy development for the currency, but a closer look suggests over-optimism is not justified.”

As such, “Today's surplus is the result of last year's euro weakness – this has already reversed and soon the surplus will shrink too. Indeed, inbound portfolio flows are likely to be a more dominant euro driver over the months ahead.” Berry adds.