FXStreet (Delhi) – Kit Juckes, Research Analyst at Societe Generale, suggests that the tool of quantitative easing used by the ECB has failed to boost the bank lending the region and in turn resulted in the weakening of the Euro. Key Quotes “I can’t see how further ECB ‘QE’ can really help boost economic activity and specifically, how it can help boost loan growth. The second problem is a market one: I have no idea how to judge how far German Bund yields can fall as growth loses momentum and investors project zero (or negative) rates further onto the future and settle for less and less yield in their portfolios.” “How low can Bunds go? When10-year Bund yields jumped from 8bp in mid-April to 98bp in mid-June, the general view was that the fall towards zero had been overdone. EUR/USD has been tracking the 10year Bund/Treasury spread more closely than short term rate differentials since the ECB cut rates in January. The lurch down in Bund yields since Thursday has taken the Euro down in its wake and if Bund yields keep on falling, the Euro will too.” “A really simple correlation of the yield spread and EUR/USD suggests that either 10year Bund yields will have to fall to zero or Treasury yields will have to rise sharply, in order to get EUR/USD back to the March lows. But that just means the Euro’s fall is likely to be slow and probably uneven. It doesn’t alter the direction of travel.” For more information, read our latest forex news.