[mtanski]

So with EUR/USD hedge the assumption is that USD is going to drop or become more unstable in the future?

I don't think anyone assumes the opposite, that the EUR will rise as a result of strong economics performance.

[fauigerzigerk]

What if you simply don't want to take a directional bet on that?

I don't find it exactly reassuring if everyone is already thinking the same thing.

[cinquemb]

Being long one currency, is an implicit short against the rest whether one engages in fx/swaps/cfds/forwards on a pair or not.

[fauigerzigerk]

Absolutely, but if an institution is taking some form of deposit in euros and promises to make predictable payments in euros then being long euros is not a directional bet for that institution.

Of course the picture gets a little murkier once you start considering inflation caused by exchange rate fluctuations. But that is probably not the main concern in a large currency area with an independent central bank.

[cinquemb]

We must have different ideas of what fx fluctuations are, +/-500 bps over a decade sure… not +/-500bps on -30% decline line over a decade vs a major pair…

[cinquemb]

Yeah it has to be the assumption, but at the same time it makes one wonder why EUR/USD hedging is increasingly expensive in the first place… though if one pulled up a monthly chart going back 10 years and their head wasn't tucked between their legs, its easy to see why.