Euro exchange rate today: EUR-USD consolidates, EUR-GBP in further gains on some positive news on the Eurozone, but where is the big-bang?

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Category: Exchange Rates

Published on Wednesday, 20 June 2012 08:41

Written by Will Peters

"This fits with our view that a Big-Bang policy announcement encompassing a roadmap for debt mutualisation seems unlikely to emerge at the upcoming EU Summit" - Gareth Berry at UBS.

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The euro (Currency:EUR) has made the most of steady political advances on dealing with the Eurozone crisis. 

The euro dollar exchange rate is today consolidating after a strong day of gains experienced yesterday. EUR-USD is at 12680 at 9:30 AM in London.

The euro pound exchange rate is 0.13 pct higher at 0.8075. For the latest pound euro exchange rate forecasts, please access our pound to euro page on our IMT site, access is free via this Facebook gateway.



Three UK newspapers – the Guardian, the Telegraph and the Financial Times – all suggested that Germany is now less
opposed to using the EFSF and its successor (the ESM) to purchase Spanish and Italian sovereign bonds in the secondary
market.

"We note that the EFSF already has the authority to do so in principle, and the ESM’s design also allows for this.
However, whether this authority is ever exercised is another matter," comments Gareth Berry at UBS.

UBS do however have some concerns, Berry says:

"Fundamentally though, whether the ECB buys bonds via the SMP, or whether this new approach is used, the seniority problem would remain. Simply put, the more sovereign bonds are bought by official sources, the more the private sector holders who remain are subordinated and – taken to extremes – an aggressive official bond buying program could eventually do more harm than good."

The G20 meeting concluded and a vague communiqué praised Europe’s, "intention to consider concrete steps towards a more integrated financial architecture, encompassing banking supervision, resolution and recapitalisation, and deposit insurance."

"This fits with our view that a Big-Bang policy announcement encompassing a roadmap for debt mutualisation seems unlikely to emerge at the upcoming EU Summit. Instead the thrust of the meeting seems likely to focus on the concept of a so-called 'banking union'" says Berry.

The other key driver of the euro dollar exchange rate pair is the expectation of further monetary stimulus in the US.

Market expectations are expected to continue building that Wednesday’s FOMC meeting may produce yet another round of balance sheet expansion