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Buy Pound Euro at 1.300? 24 Banks Fail Stress Test, but GBP EUR Forecast to Gain

October 27, 2014 - Written by John Cameron

The Pound to euro exchange rate is forecast to advance today, but will it hit 1.3000 for GBP EUR buyers?



gbp eur forecastYesterday’s announcement from the European Banking Authority that twenty four of the eurozone’s retail banks had failed the latest regional banking stress test is unlikely to help the euro (EUR) very much as this week’s session gets under way.

The Pound to Euro exchange rate today is converting -0.01 per cent lower at 1.26924 GBP/EUR.
The Euro to US Dollar exchange rate today is converting +0.05 per cent higher at 1.26821 EUR/USD.

Greek & Italian Banks Fail Stress Test

The latest missive from the European Union watchdog assessed the condition of the region’s banks at the end of last year, so the figures made public yesterday were historical in nature.

Ten of the twenty four ‘fails’ have taken steps to repair their balance sheets in the intervening period, but that leaves fourteen others which investors are likely to view as ‘basket cases’ moving forward.

Worryingly for the European Central Bank, these include two in perennial problem state Greece, as well as a whopping four in Italy.

The most troubled of these four is Monte dei Paschi which had a capital shortfall of some £1.65bn; this represents a large hole to fill and the danger for this institution now that details of its balance sheet problems have been so publicly flagged up is that its savers will make large scale withdrawals beginning this morning.
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Could GBP EUR Exchange Rate Hit 1.3000?



If you are getting a feeling of déjà vu at the news, then you can be forgiven.

The last financial stress tests on the euroland’s bourses came in 2011 and there were multiple failures at this time as well.

Any run on the assets of Monte dei Paschi would be likely to hasten the closure of the bank – a fate which befell Franco-Belgian behemoth Dexia in the aftermath of the last round of EBA stress tests.

The bourse from the lowlands employed over 35,000 staff at the time of its demise.

If one or more eurozone banks do fall by the wayside during coming weeks, then expect the Pound to euro exchange rate (GBP EUR) to make a concerted run at the psychologically-key 1.3000 threshold which it has stubbornly held below for several years.

Fed Guidance Could Hurt Euro rate



Elsewhere, there is no question that the main event in the markets this week comes on Wednesday with the latest monetary policy announcement from the US Federal Reserve.

No change in policy is anticipated, however if the Fed’s board opts to drop its guidance that domestic interest rates will remain low for a ‘considerable period’, then expect the US Dollar (currency:USD) to firm-up across the board.

The euro would be likely to weaken as a result and the Commodity Dollars, (AUD, NZD & CAD) would also come under renewed selling pressure.
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