Euro to Dollar Exchange Rate (EUR/USD) Slips Over Mini EU Banking Crisis

Modified: Friday, 11 July 2014 11:01 BST - Written by James Fuller

STORY LINK Euro to Dollar Exchange Rate (EUR/USD) Slips Over Mini EU Banking Crisis

The single currency remains bullish against the ‘Buck’ in the Euro to Dollar (EUR/USD) exchange rate pairing, and at present is trading in the region of 1.3624 following disappointing US meeting minutes from a dovish Fed, that quashed hopes of interest rate rise discussions in the near future.

Conversely, the President for the European Central Bank, Mario Draghi, stated his concern that the Eurozone needed a structural reform for its members in order to allow for a more efficient tapering of economic differences.

Some key reference forex rates updated 11/07/2014 11 GMT:

- The pound to euro exchange rate is +0.06 per cent higher at 1.25985.
- The euro to pound exchange rate is -0.06 per cent lower at 0.79374.
- The dollar to euro exchange rate is +0 per cent higher at 0.73506.

Draghi stated: ‘No firm or individual should be penalized by its country of residence. The persistence of such differences creates the risk of permanent imbalances. With this in mind, I believe that structural reforms in each country are enough of a common interest to justify that they are made subject to discipline at the community level.’

Furthermore executive board member for the European Central Bank, Benoit Coeuré, has also claimed a need for: ‘a convergence of economic policies and structures,’ that would be, ‘embedded in a binding European effort, based on benchmarks to be met by all Euro-area member states.’ Draghi is also continually concerned for the low inflation figures achieved within the Eurozone.

Draghi said that the ECB would use ‘unconventional instruments within its mandate’—which appears to be referring to asset buying en masse—if the inflation levels continue to be a problem.


Moreover, Draghi commented: ‘To unwind the consolidation that has been achieved, and in doing so to divest the rules of credibility, would be self-defeating for all countries.’

The US however now awaits the release of Initial Jobless Claims data published at 12:30GMT, after a disappointing result from the meeting minutes late on Wednesday. With no discussions of interest rate hikes on the horizon for the US, the ‘Buck’ has once again lost its appeal to investors who were hopeful that given recent positive US data, the speculation for the rate hikes may cause the Fed to reconsider.

Instead the US Dollar (USD) slipped when interest rate talks weren’t brought to the forefront, causing a significant fall against the Japanese Yen and the Euro. Economist Lennon Sweeting commented: ‘The Fed continue to appear dovish, which hurts the Dollar.’

The Euro has firmed against the US Dollar (EUR/USD) by 0.2% on Wednesday, following speculation that the ‘crazy’ strength of the Euro needed to be contained.

The US Dollar however was under speculation to rally last week in light of positive employment figures; however the recent Fed minutes have quashed the hope of the ‘Greenback’ gaining much strength over other majors in the near future.

Economist for Westpac Banking Corporation, Imre Speizer, stated: ‘The minutes themselves were not insightful, there was nothing significantly new in them but the market immediately responded, pushing down interest rates in the US, pushing down the US Dollar and therefore pushing up most currencies against the US. It suggests the market might have positioned itself for a hawkish report, didn’t get a hawkish report and then quickly had to take back their speculative positions.’

The US Dollar is bearish against other majors in the current currency market, and therefore the data publishing today for Initial Jobless Claims could help to boost the falling ‘Buck’.

Furthermore the Euro will see more influential data publishing tomorrow when The German Consumer Price Index is released, which is currently predicted to stagnate at the former 0.4% for the final June figure. Meanwhile Friday evening (18:00GMT) will also see the release of the US Monthly Budget Statement, currently forecast to be published at $79.0B.

For now, the Euro to Dollar (EUR/USD) pairing appears to be in favour of the Euro; however with data publishing this afternoon and the prospect of the German Consumer Price Index on Friday, the ‘Greenback’ may be able to firm slightly.

EUR/USD Update 11/07/2014

Yesterday the Euro (EUR) posted notable declines against peers like the US Dollar (USD) as investors were spooked by a mini banking crisis in Portugal.

While the Eurozone member had appeared to be performing well after exiting its bailout programme, this development indicates that the fiscal stability of the currency bloc and its principle members is far from assured.

This morning’s final German Consumer Price Inflation figures for June confirmed previous estimates and had little to no impact on the Euro to Dollar exchange rate (EUR/USD).

Today’s US Monthly Budget Statement could trigger some movement in the pairing before the weekend.

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TAGS: Euro Forecasts