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EUR USD Exchange Rate Slides Closer to Parity As Italian Banking Sector Weighs on Euro

  • EUR USD Pressured by Italian Banking Sector – Monte dei Paschi may see a bailout later this week.
  • US Dollar Re-enforced by Fed Comments – Yellen upbeat about US labour market.
  • Eurozone Data Beats Expectations – But does little to improve Euro sentiment.

The Euro US Dollar (EUR USD) exchange rate continued its recent string of losses today as a potential bailout of Italy’s oldest bank pushes the currency pairing closer to parity.

Euro US Dollar (EUR USD) Pressured by Monte dei Paschi Bailout

The Euro (EUR) fell following the Italian government’s move to gain approval to borrow €20bn to help prop up Italy’s struggling banking sector, with most observers expecting that it will start with a bailout of the nation’s third largest bank, Monte dei Paschi.

Investors have become increasingly concerned about the bank’s ability to operate as it struggles to find private investors to raise the funds need to remain solvent. As Reuters reports;

‘Monte dei Paschi, recently judged the weakest of the European Union’s major banks, needs to dispose of a mountain of bad loans and raise 5 billion euros in capital by the end of this month or else face the risk of being wound down by the European Central Bank.’

Analysts predict that a government bailout could happen sometime this week if the struggling bank is unable to attract the private investment needed, placing further pressure on the Euro as markets speculate on the political impact the bailout may have on the new government led by Prime Minister Paolo Gentiloni, hastily formed after former PM Matteo Renzi’s resignation earlier in the month.

US Dollar Bolstered by Yellen Remarks

The US Dollar (USD) has gone from strength to strength following the Federal Reserve’s rate hike last week, with recent remarks from Fed Chair Janet Yellen helping to further bolster the ‘Greenback’.

Yellen, in speaking about the recent reliance of the US labour market said in a public speech on Monday;

‘After years of a slow economic recovery, you are entering the strongest job market in nearly a decade.’

The comments helped to re-enforce the Fed’s upbeat economic forecasts last week as the central bank predicted that it could raise US interest rates up to three times in 2017 if the US economy, especially the employment sector, continue improving.

Better than Expected Data Does Little to Improve Euro

The decline of the Euro could not even be curbed by upbeat data today despite German Producer Prices rising from -0.4% to 0.1% in November, outpacing expectations it would only see a modest rise to -0.2%.

A rise in the Eurozone’s surplus from €32.2bn to €32.8bn in October’s Current Account report also provided little upward momentum for the single currency as the low impact ecostat was overwhelmed by sliding Euro sentiment.

EUR USD Exchange Rate Forecast: Eurozone Consumer Confidence Due Tomorrow

The EUR USD exchange rate may see a modest rise on Wednesday following the release of the Eurozone’s latest Consumer Confidence survey as sentiment is expected to improve from -6.1 to -6.0 in December, although it would likely require figures to have accelerated past expectations to provide any significant lift to the single currency.

Meanwhile a predicted decline in US Home Sales could help the Euro dodge parity with the US Dollar for a little longer as analysts forecast sales will see a notable drop from 2.0% to -1.8% in November.

Current Interbank Exchange Rates

At the time of writing the EUR/USD exchange rate was trending around 1.03 and the USD/EUR exchange rate was trending around 0.96.