breakdown of the capital markets in March saw the dollar soar,
but as risk appetites returned following massive stimulus from
the Fed, investors gradually abandoned it.
The dollar’s losses against the euro accelerated in July as Europe
showed itself more successful at controlling the spread of the Covid-
19 outbreak and the EU’s 27 member states reached an historic
agreement to create a €750 billion ($893.8 billion) pandemic
recovery fund. The European Commission will begin large-scale
borrowing for the first time and distribute €390 billion of proceeds
to member states as grants that do not have to be repaid.
Deutsche Bank strategists forecast that the euro could trade
in a fairly wide range this fall, from as high as $1.25 to as low as
$1.10, and end the year around $1.20. Further policy changes
by the European Central Bank are not expected, they noted
in recent analyses, while the euro’s strength will moderate.
A continued decline in the dollar could hurt the stumbling
recoveries in Europe and Japan as their exports would be less
competitive.
The dollar’s pullback this summer helped emerging market
economies by making it easier for them to repay dollar-
denominated obligations. A weaker dollar also helps lift
commodity prices, says Chandler. The dollar’s decline should
not be seen as a crisis or a challenge to the greenback’s role in
the world economy, he adds; the euro is currently trading close
to the $1.20 level it has averaged since it was introduced in
January 1999 at $1.17.
However, analysts at Citi say market volatility is likely to
increase as US elections near. They remain bullish on the
euro and forecast further long-term investment flows into the
eurozone, since many global investors are still underweight
European assets. –Gordon PlattW
hen the US dollar broke into a sudden slide this
summer, the euro was the prime beneficiary. The
single EU currency rose to a two-year high on August
18 of $1.2; many emerging-market currencies rebounded from
earlier selloffs as well.
Analysts, however, said the dollar’s pullback was likely a
consolidation of past gains and not a lasting turn downward.
“It was a head fake, and the greenback [dollar] quickly
returned to previous ranges,” says Marc Chandler, chief market
strategist at Bannockburn Global Forex. The dollar recovered
in late August as investor enthusiasm for risk ebbed on
dampened expectations of new Federal Reserve initiatives and
disappointing preliminary reports on US economic performance
in August, he says.
When investors become less willing to take risks, they’ve
traditionally turned to the dollar and gold as safe havens. TheFOREIGN EXCHANGE
Dollar’s Summer Slump Gives
Hope To Euro InvestorsBURAND / SHUTTERSTOCK.COM
CORPORATE FINANCE & CAPITAL
CAPITAL MARKETSBLAZEJ LYJAK / SHUTTERSTOCK.COMSPAC BOOM
Blind Dates BoomI
nvestors are putting a lot of money into new businesses—even
if they don’t know what they actually are yet.
Blank-check or special purpose acquisition companies
(SPACs) are all the rage on Wall Street. With no business operations
of their own, they raise capital through an initial public offering
(IPO) with the sole purpose of acquiring or merging with a private
company that has yet to be disclosed. With the SPAC providing
expertise and technical resources, the new venture can avoid the
cumbersome process of a traditional IPO and go public in as little
as eight weeks.
SPACs are nothing new; they’ve been around in various forms
since the 1980s. But in today’s environment, these “blind dates”
for big investors are getting bigger and bolder. Recent examples
include venture capitalist Chamath Palihapitiya’s firm Social Capital
Hedosophia, which helped space tourism company Virgin Galacticlist on the New York Stock Exchange last year; and VectoIQ,
which merged with Tesla-challenger Nikola Corporation in March
to form a $3.3 billion company. In July, hedge fund manager
Bill Ackman launched
his own SPAC, Pershing
Square Tontine Holdings,
the largest ever, with a war
chest of $4 billion.
That said, the SPAC
craze, coming at a time
of extreme volatility in the
markets, has yielded bittersweet results. Some vehicles have seen
double–and even triple-digit gains while others arrived too late to
the party and have suffered crushing losses.
In the long run, of course, the success of SPACs won’t hinge
on how they went public, but on tried and true ingredients:
a winning business strategy and leadership.
–Luca VenturaSeptember 2020 | Global Finance | 63