Euro US Dollar Exchange Rate News: EUR/USD Firms as Banking Sector Collapse Averted

Euro US Dollar Exchange Rate Strengthens as Further Financial Sector Fears Recede

The Euro US Dollar (EUR/USD) exchange rate is climbing as a last-minute bailout for First Republic Bank eased fears of contagion in the banking sector.

At time of writing the EUR/USD exchange rate is trading around $1.0645, a 0.31% climb from this morning’s opening levels.

US Dollar (USD) Undermined by Improving Market Mood

Meanwhile, the US Dollar is struggling for demand this morning in the wake of improving global market sentiment. With fears over deepening financial crisis fading the safe-haven US Dollar is weakening.

With First Republic Bank on the edge of collapse, fuelling fears of a wider US banking sector crisis, the Federal Reserve announced late last night a successful rescue operation. 11 US banks deposited $30bn into First Republic to resolve the liquidity issue. US regulators hailed the move ‘most welcome’ and brushed off fears of a banking crisis. They added:

‘Recent events did nothing to change this. The actions of America’s largest banks reflect their confidence in the country’s banking system.’

However, despite USD investors cheering the news of avoiding another banking catastrophe, an improving market mood only served to stem safe-haven flows as investors sought riskier currencies.

Euro (EUR) Supported by Elevated Rate Hike Bets

The Euro is enjoying renewed strength this morning in the wake of a dovish 50bps rate hike yesterday. Despite ECB President Christine Lagarde’s uncharacteristically cautious speech, the Euro found demand amid a weakening US Dollar.

Bolstering rate hike bets once more, ECB policymaker Peter Kazimir hinted that the central bank had not quiet finished with increasing interest rates. Kazimir said:

‘Even the current events on the financial markets do not change my view that we need to continue. I am very well aware of the delicacy of the situation… but we are not yet at the finish line.’

However, despite the bailout of both Credit Suisse and First Republic, ongoing fears of a financial crisis could still be weighing on market sentiment. The Euro could come under pressure if fears of prolonged volatility in the European banking sector linger.

Euro US Dollar Forecast: Fed Interest Rate Decision to Boost the Greenback?

Looking ahead to next week’s session, the Euro US Dollar exchange rate could see drastic movement with the Fed’s interest rate decision on Wednesday. With volatile market conditions, compounded by fears of a banking collapse, will the Fed be more cautious with rate hikes?

Meanwhile, the Euro will be heavily influenced by wavering market sentiment. Any further updates on the banking sector, both sides of the Atlantic, could impact the Euro.

Danny Tingle

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