- German Government Denies Plan to Bailout Deutsche Bank – Report dropped shares in bank to new lows.
- Commerzbank to Cut Nearly 10,000 Jobs – Germany’s second largest bank cuts a fifth of its work force.
- Draghi refuses to budge on interest rates – As record low interest rates cause friction with German lawmakers.
- Fed Chief Yellen Speaks at Financial Services Committee – Bets grow for December rate Hike.
The EUR USD exchange rate remains volatile over the ongoing Deutsche Bank crisis, as a $14b fine from the US Department of Justice over mis-sold mortgage bonds has hit the group at a time when the bank’s profitability is plummeting due to low interest rates.
German Government Denies Plan to Support Deutsche Bank, Euro (EUR) Holding 1.12
After falling earlier in the week as the Deutsche Bank crisis first came to the fore, the Euro US Dollar exchange rate returned to trending in the region of 1.12 on Thursday.
German Officials were quick to deny Wednesday’s report by Die Zeit that the German government and financial authorities are preparing a plan to rescue Deutsche bank should its situation worsen. The report came shortly after Deutsche Bank rebuffed claims that CEO John Cryan had approached the German Government about the possibility of support.
Any move to support Deutsche bank would be difficult for the German government as Germany has spent the last few years preventing failing banks elsewhere in Europe from being bailed out.
Fortunately the Deutsche Bank share prices rallied after they agreed to the sale of its Abbey Life insurance business to Phoenix Group for €1.09bn, as many see a collapse in the bank as catastrophic for the Euro (EUR).
EUR USD Fluctuates on News that Commerzbank Will Cut Nearly 10,000 jobs in Restructuring Plan
Although the Deutsche Bank situation is looking more positive, EUR USD exchange rate gains were limited due to other German banking news.
Germany’s second largest bank, Commerzbank, is to cut 9600 jobs in a move that echoes Deutsche Bank’s job cuts of 25,000 last year. This is unwelcome news at a time when Euro (EUR) exchange rates appeared to be stabilising as the outlook over the Deutsche Bank crisis was becoming more upbeat.
Commerzbank is also struggling to remain profitable in the face of record-low interest rates across Europe.
ECB President Mario Draghi Remains Defiant over Low Rates
In other news, European Central Bank President Mario Draghi continues to resist pressure to raise the interest rate as he fielded questions in Germany’s Bundestag on Wednesday. German politicians claim that the continued low interest rates are unfair for Germany. Florian Hahn of the Christian Social Union said;
“The measures the ECB has taken are good for the Eurozone as a whole but not for Germany. And that’s what we as politicians have to explain to our voters.”
US Dollar (USD) Exchange Rates Gain on December Rate Hike Bets
While the Euro (EUR) has been fluctuating in response to domestic news, US Dollar (USD) exchange rates have been responding to Federal Reserve interest rate hike expectations.
Federal Reserve Chief Janet Yellen’s testimony before the US financial regulators yesterday once again led markets to speculate that the Federal Reserve will announce an interest rate hike in December. Yellen was hawkish about a rise as she made it clear she would raise rates before the dropping unemployment rate would ‘overheat’ the economy, forcing her hand.
Yellen also said the Fed was prepared to aggressively fight the next recession, and it could make use of ‘unconventional’ programs in order to do so.
EUR USD Exchange Rate Forecast: Euro to Stabilise on Strong German Data?
The EUR USD exchange rate may stabilise with the release of positive reports on both German unemployment and inflation rates. The jobless numbers rose by around 1000 to 2.68million but the unemployment rate held at a record low of 6.1%. Meanwhile annual inflation in Germany spiked to 0.7% in September, hitting its highest level since May 2015.
The Euro may also gain on Friday with the release of the Eurozone consumer price index, which is predicted to increase to 0.9%.
Current Exchange Rates
At the time of writing the EUR/USD exchange rate was trending around 1.0306 and the USD/EUR exchange rate was trending around 0.8922.