- Euro US Dollar Exchange Rate Wavers as Italian PM Considers Public Bailout – Flagging Italian banks dealing with a mountain of bad debt eye up tax-payer bailout.
- Concerns over Italian Banks and Brexit Contagion Hamper Euro – $400 billion of bad Italian debt and rising Eurosceptic attitudes keep market uncertainty rife.
- Likelihood of US Fed Rate Hike Non-existent in Near-term – Probability of a hike before December drops to just 10%.
- Rich Week of EU and US Ecostats Could Effect Currency Movement – US and EU PMIs set for release.
Continued European instability has seen the Euro US Dollar exchange rate begin to slide during this morning’s session.
Italian banks struggled to recuperate from the 2008 world banking crisis due to various factors and now appear to be straining under a mountain of bad debt. Slow growth caused by the UK’s decision to secede from the European Union has caused the Italian bank system further woes, with over €200 billion lent out to borrowers now considered insolvent.
The US Dollar has felt some upward pressure as market data printed favourably before the weekend, this comes on the back of an apparent marginal abatement of safe-haven demand.
Currently the Euro US Dollar exchange rate trades at 1.1107 after depreciating 0.25% over the session so far.
Eurozone at Risk of Brexit Contagion, Italian Banks Wrestle with $400 Billion in Bad Debt
The European Union and Eurozone have warily eyed the destabilising consequences of the UK’s decision to leave the EU. Populist separatist movements have flourished in member states which already had some form of Eurosceptic conclave.
Italy’s banks are straining to keep their heads above water amidst calls for a publically funded bail out. The EU enacted rules in January suggesting domestic banks should be bailed out by creditors rather than taxpayers, already a bank-supported fund known as ‘Atlante’ has used over half its capital to buy shares in two lenders that failed to attract equity from the market.
Italian Prime Minister Matteo Renzi is gearing up to forgo the new rules however, as Italian banks wrestle with over €360 billion of bad debt. There appears to be an approximate €40 billion hole in the system as borrows have become insolvent, €200 billion worth of loans have been written down to 45% of face value but analyst suggest the figure is more like 20%, leaving the Italian banking system wanting.
All this continued economic certainty has kept the Euro US Dollar exchange rate low, even with safe-haven demand appearing less prevalent than in previous days.
US Dollar Remains Weaker with Fed Hesitant to Enact Policy
The Euro US Dollar exchange rate has been appreciating gradually as safe-haven demand abates and the chance of a near-term Fed rate hike was obliterated.
The UK’s 23rd June vote to leave the EU has caused all manner of concerns the world over. An immediate post-vote surge in safe-haven demand saw the US Dollar’s value shoot through the roof but also served to dash any hopes of a US Federal Reserve rate hike, in the near-term at least. Bets for a July hike became non-existent while probability for a hike before December fell to just 10%.
The US is on holiday today as it celebrates Independence Day and as such its markets are closed. US Fed vice chairmen Stanley Fischer has suggested the Fed should bide its time in regards to rate changes as the current climate screams uncertainty with low US production output and an aging populous complicating matters further.
Euro US Dollar Exchange Rate looks to Rally with Bleak US Ecostats Forecast
The Euro US Dollar exchange rate could expect so see some upward pressure if this week’s Eurozone data wins favour. On Tuesday, Eurozone retail sales figures are set for release. This report typically functions as a cursory look at consumer confidence. It is likely the figure is due to drop thanks to post-Brexit economic conditions, but an increase could bolster support for the common currency.
Plenty more European ecostats are set for release later in the week with a group of four fairly impactful reports pegged for Wednesday. German factory orders and both construction and retail PMIs are expected along with a general Eurozone retail PMI. With Germany being the EU’s largest economy, increases in any of these measures could place upward pressure on the Euro.
From the US, Tuesday’s month-on-month factory orders are worth watching out for as they tend to hint towards optimism in the economy, with any great rise affording the US Dollar some form of boost. Wednesday holds US employment figures as well as the trade balance, along with final composite and services PMIs. Again any marked rise in the data should see the ‘Buck’ bolstering. However, forecasts look bleak.
Going forward, it will continue to be mostly sentiment surround the Fed and any potential rate cuts/hikes as well as European uncertainty affecting the Euro US Dollar exchange rate, until such a time as the markets begin to get over the Brexit shock.