Euro exchange rate today: The US FED fails to provide that much needed money shot to boost confidence

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Category: Exchange Rates

Published on Friday, 08 June 2012 08:46

Written by Will Peters

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"The market needs more than just a shot in the arm, especially if the non-Eurozone economies are expected to compensate for a lack of action within Europe" - Geoffrey Yu at UBS.

The euro (Currency:EUR) is one of the morning's big losers as risk-taking is decidedly not popular this morning. Looking at the spot rates we see:

The euro dollar exchange rate is 0.79 pct down on Thursday's closing level, EUR-USD is at 1.2463. Today's high was at 1.2575, reached just after mid-night - the trajectory is firmly downwards.

(Please note we publish the latest bank FX forecasts on our IMT site, access is Free via our Facebook gateway page).

The euro pound exchange rate is 0.06 pct down on yesterday, EUR-GBP is at 0.8085. Heading into the London open the currency pair spiked higher to 0.8097, but it appears to be stuck in a sideways trajectory.



"The market was back in risk off mode overnight as the Fed’s failure to complement the PBOC’s interest rate cut with hints of more stimulus disappointed. It is clear that in the face of weakening growth expectations and Eurozone woes, the market needs more than just a shot in the arm, especially if the non-Eurozone economies are expected to compensate for a lack of action within Europe," says Geoffrey Yu at UBS.

Yesterday Bernanke did flag the risks and kept all policy options open - yet failed to offer any real hints of impending action at the FOMC meeting on June 19-20.

Bernanke highlighted the potential headwinds ahead that have prevented the Fed from taking any options off the table yet, warning that "the situation in Europe poses significant risks to the US financial system and economy" and the fiscal cliff would "pose a significant threat to the recovery."

However, Bernanke stopped short of suggesting that the Fed was prepared to act preemptively to avert a crisis, a somewhat less dovish posture relative to that of Vice Chair Yellen, who earlier noted:

"There are a number of significant downside risks to the economic outlook, and hence it may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest".

Looking ahead, exchange rates will take direction from European headlines, while on the data front the Canadian labour market report is the key release. The US trade balance is out.