EUR/USD and EUR/GBP Begin European Session Stronger
Both the Euro to US Dollar (EUR/USD) and Euro to Pound (EUR/GBP) exchange rates began the local session trending higher thanks to the revised results of the European Central Bank’s banking stress test.
The extensive re-examination of the Eurozone’s financial sector showed that by the close of last year the region had a total capital shortfall of 25 billion Euros. However, since then banks have narrowed the deficit to 6.35 billion Euros.
The test also showed that none of the currency bloc’s biggest banking institutions were a cause of concern, with German and French banks all passing mustard.
As many investors had been concerned that the test would uncover extensive underlying weaknesses, the actual result was something of a relief and the Euro advanced accordingly.
According to the Wall Street Journal; ‘Cypriot and Greek banks fared poorly in the tests, with three failures each. Authorities in both countries said the outstanding capital shortfalls were manageable. Banks that received failing marks, and which haven’t already filled their capital holes, now have two weeks to explain to regulators how they plan to overcome the deficits. They will have up to nine months to implement the plans.’
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7898
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2657
However, the boost the Euro exchange rate received from this news was a little undermined by less-than-impressive data from Germany – the Eurozone’s largest economy.
Last week the German GfK Consumer Confidence index surprised investors by showing an improvement in sentiment.
However, the news was much less positive today.
Germany on Verge of Recession
IFO’s gauges of Business Sentiment, Current Assessment and Expectation’s all registered steeper-than-anticipated declines in October.
The business climate measure had been expected to read at 104.5, down from 104.7 the previous month, but it actually dropped to 103.2.
Meanwhile, the current assessment index fell to 108.4 from 110.5 – dropping past the 110.0 figure forecast.
Finally the expectation’s gauge slid from 99.3 to 98.3.
The reports add to concerns that the Eurozone’s largest economy is on the brink of recession and put the Euro under pressure.
In the view of economist Joerg Kraemer; ‘The latest numbers from the industrial sector are very worrisome. The third quarter was probably worse than expected, the economy may have stagnated at best.’
EUR/GBP Exchange Rate Steady after CBI
The Euro initially softened against the Pound after the German data was published and the EUR/GBP briefly hit a low of 0.7859 after the UK’s Reported Sales figure came in above expected levels.
Economists had forecast that the Confederation of British Industry’s Reported Sales figure would come in at 25 in October, down from 31 in September, but the measure actually held at previous levels.
The Pound was also able to stabilise against several of its main rivals as trading patterns indicated that the British currency’s recent decline had been excessive.
Tomorrow the EUR/GBP exchange rate could fluctuate following the release of the German import price index. Comments from various Bank of England officials will also have an impact.
EUR/USD Could Trend Lower after US Data
As the European session progressed the Euro was able to recoup much of its losses against the US Dollar, moving from a low of 1.2663 to trend in the region of 1.2680.
We forecast that the EUR/USD exchange rate could experience volatility if today’s US reports surprise.
Given that the US services sector accounts for the majority of the nation’s total economic output, the report investors will be paying most attention to will be the Markit Services PMI measure.
That index is projected to have eased from 58.9 to 57.8. If that proves to be the case the Euro could advance on the US Dollar. However, an unexpected improvement in services would support the case for a BoE interest hike and could cause Euro to US Dollar exchange rate losses.
UPDATE
The Euro to US Dollar exchange rate is currently trending in the region of 1.2707.
The Euro to Pound Sterling exchange rate is currently trending in the region of 0.7887.
After German imports data printed above expectations the common currency has generally appreciated against the majority of its most traded currency competitors. German Import Price Index rose from -1.9% to -1.6% on a yearly basis, and from -0.1% to 0.3% on a monthly basis.
Sterling has depreciated against most of its major peers after Bank of England Deputy Governor Minouche Shafik called in to question trader practise within the institution. Shafik warned that an extension of bonus clawbacks to brokers and trading firms may result from the ‘truly shocking’ conduct.
With a number of domestic data publications due for publication later on Tuesday, the US Dollar has softened a fraction in anticipation of said publications. In particular, Durable Goods Orders and Consumer Confidence is likely to provoke volatility for the ‘Buck’ (USD).
UPDATE
With the FOMC decision looming, the EUR/USD exchange rate consolidated gains on Wednesday. The Euro to US Dollar exchange rate could push higher still if the Fed is particularly dovish. Some pessimism from the central bank has already been priced into the market, but hints at the possible reintroduction of quantitative easing could drive the US Dollar to fresh lows.
Meanwhile, the news that the level of UK mortgage approvals declined in September helped the EUR/GBP exchange rate advance during the European session.
Of course, any Euro gains could be undone if tomorrow’s German employment and consumer price inflation data disappoints.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,Pound Sterling,0.7914,
Euro,,US Dollar,1.2669,
Euro,,Canadian Dollar,1.4372,
Euro,,Australian Dollar,1.4561,
Euro,,New Zealand Dollar,1.6060,
US Dollar,,Euro ,0.7893,
Pound Sterling,,Euro,1.2631,
Canadian Dollar,,Euro,0.6955,
Australian Dollar,,Euro,0.6866,
New Zealand Dollar,,Euro,0.6222,
[/table]
