As the European session progressed on Thursday the Euro to US Dollar (EUR/USD) exchange rate tumbled by 0.3% as investors grew very nervous about the fiscal situation in Portugal
The EUR/GBP pairing also eased lower as it was reported that one of the largest banks in Portugal missed short-term debt payments – sparking a freefall in shares and bonds.
The Banco Espirito Santo SA’s parent company failed to make good on payments due, and even though the Bank of Portugal has since pledged that the former institution is safe the situation remains tenuous.
Banco Espirito Santo shares dropped by over 17% (hitting their lowest level for over 12 months) and the Portuguese stock market regulator was forced to halt trading.
Although the threat of deflation has been a major concern for the European Central Bank in recent months, Eurozone dramas have been far sparser than at the height of the economic crisis.
Consequently, this blip is particularly concerning.
According to strategist Adrian Miller; ‘Should the Portuguese situation continue to deteriorate, risk aversion contagion could quickly spread to other Eurozone member states’ bonds and other asset classes. The situation confirms the EU’s efforts to break the link between sovereigns and the related banking system has not been successful.’
Similarly, equity strategist Peter Garnry asserted; ‘Banco Espirito Santo is the most important event right now impacting European equities. Investors are dumping the shares and bonds of the Portuguese lender. The event has hit European financials like a torpedo and has revived investors’ darkest nightmares about Europe.’
The Euro to US Dollar (EUR/USD) exchange rate was also affected by the news that US initial jobless claims fell by more than expected in the week ending July 5. Economists had expected claims to print at 315K, but they actually came in at 304K.
However, the level of Continuing Claims did increase by more-than-expected and US Wholesale Inventories were shown to have risen by 0.5% in May instead of the 0.6% expected.
Gains in the Pound to Euro (GBP/EUR) exchange rate were limited by the fact that the appeal of the British asset had been lessened earlier in the local session by disappointing UK trade figures and an uninspiring Bank of England interest rate decision.
Before the week comes to an end, further volatility in the Euro to US Dollar (EUR/USD) exchange rate could follow the publication of final German inflation figures and the US Monthly Budget Statement.
EUR/GBP volatility will be driven by the UK’s Construction Output figures.
US Dollar (USD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
US Dollar,
,Pound Sterling,0.5843,
US Dollar,,Canadian Dollar,1.0661,
US Dollar,,Euro,0.7352,
US Dollar,,Australian Dollar,1.0675,
US Dollar,,New Zealand Dollar,1.1356,
Canadian Dollar,,US Dollar ,0.9380,
Pound Sterling,,US Dollar,1.7116,
Euro,,US Dollar,1.3598,
Australian Dollar,,US Dollar,0.9373,
New Zealand Dollar,,US Dollar,0.8810,
[/table]
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