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EUR USD Exchange Rate Rises with Concerns of an Italian Banking Crisis Alleviated

  • EUR USD Volatility Caused by Italy’s Oldest Bank – Fears mount that potential Monte dei Paschi bailout will weigh on banking sector.
  • Fed Rate Decision on Wednesday – Predicted rate hike set to bolster US Dollar.
  • Eurozone Economic Survey May Bolster Euro – German CPI also to be released on Tuesday.

The Euro US Dollar (EUR USD) exchange rate rose this morning as market concerns that a bailout for Italy’s oldest bank, Monte dei Paschi, may cause a banking crisis were rebuffed by European Officials.

Euro US Dollar (EUR USD) Fluctuates over Banking Fears

The Euro (EUR) initially dipped at the start of this week as investors grew concerned that Italy’s third largest bank Monte dei Paschi may require a bailout from the new Italian government.

Monte dei Paschi had been attempting to persuade private investors to back the struggling bank to the tune of €5bn, but doubts were raised about its ability to meet its commitments after the European Central Bank (ECB) apparently refused to extend the bank’s deadline to secure funding. As Stephanie Kirchgaessner of The Guardian reports;

‘Executives at Monte dei Paschi di Siena are fighting to salvage a multibillion-euro rescue by private investors in a frantic attempt to prop up the bank.’

The single currency rebounded at the start of the European session however as the EU Economics Commissioner Pierre Moscovici claimed that;

‘There is not and there will not be a banking crisis in Italy, there will not be a European financial crisis coming from Italy. We have the capacity to deal with the situation and it will be dealt with from both in Italy and at the European level.’

Fed Rate Hike Bets Continue Strengthening US Dollar

US Dollar (USD) exchange rates remain resilient ahead of Wednesday’s Federal Reserve meeting in which investors overwhelming predict that Fed policymakers will vote to raise interest rates from 0.50% to 0.75%.

However the odds of a December rate hike have consistently hovered around 95% for the last few weeks, meaning that the ‘Greenback’s’ gains from a recent run of impressive data releases have been relatively muted, with most traders already having priced in the rate increase.

Markets have now begun to predict the likelihood of additional rate rises next year as Donald Trump’s recent victory in the US elections leads investors to speculate on what his presidency will mean for the economy, with many already forecasting that his focus on infrastructure spending and job creation will lead to multiple rate hikes in 2017.

EUR USD Exchange Rate Forecast: Eurozone Data May Help Euro Advance

The EUR USD exchange rate may rise on Tuesday with the release of ZEW’s latest Eurozone Survey, which measures economic sentiment across the European Economic Area (EEA).

Analysts predict that it will rise from 15.8 to 16.7 in December, which will likely cause an uptick in the Euro. Germany’s own survey is expected to jump from 13.8 to 15.1 over the same period.

The single currency may be bolstered further if Germany’s Consumer Price Index also sees an improvement, although current forecasts indicate that German inflation is likely to hold at 0.8% in November.

Current Interbank Exchange Rates

At the time of writing the EUR/USD exchange rate was trending around 1.06 and the USD/EUR exchange rate was trending around 0.94.