Euro: Vulnerable as US diesel policy bites – Societe Generale

Kit Juckes at Societe Generale highlights that a proposed US diesel export ban would likely push up European diesel prices and weigh on the Euro and other European currencies. He points to rising bond yields and Oil prices as additional headwinds and questions whether consensus Eurozone growth forecasts will be revised lower if these pressures persist.

European currencies face energy headwinds

"The fact that banning exports may be about as effective a way of containing US diesel prices as tilting at windmills was for Don Quixote will not, however, prevent the policy from driving up diesel prices in Europe. In FX markets, there is only one major winner from such a policy: the dollar. The US may not benefit economically, but the euro, and probably most other European currencies, would suffer."

"However, in the midst of a global energy crisis, it is hard to imagine the US seeing growth slow signifiacntly, before Europe does. Consensus Eurozone growth forecasts ticked up to 1.3% in September, but will the next update bring a downward revision if bond yields and oil prices continue to rise for much longer?"