Euro exchange rate today: "We keep our bearish view on the euro" warn UBS amidst further signs that China itself is succumbing to weakening global sentiment

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Category: Exchange Rates

Published on Monday, 25 June 2012 09:12

Written by Sam Coventry

"Scepticism is entirely warranted in our view – especially given that a meeting of leaders from the Eurozone’s four largest economies in Rome on Friday produced little of substance" - Gareth Berry at UBS.

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The euro (Currency:EUR) is unlikely to rally in coming days as, "investor optimism over the upcoming EU summit on June 28-29 continues to fade," warns a morning FX note from UBS. (For the latest FX forecasts, please visit our IMT site, access is Free via this Facebook gateway).

The euro dollar exchange rate is 0.48 pct down on a day-to-day basis at 1.2507. The euro pound exchange rate is 0.4 pct lower at 0.8033.



Setting the pace for today are further indications that the Chinese economy will be unable to single-handedly sustain the global economy.

China’s 2012 gross domestic product estimate was cut at Citigroup to reflect “anemic” domestic activity in the second quarter and further weakening of European demand.

The escalation of Europe’s debt crisis may cause a hard landing as weaker external demand erodes China’s growth by nearly 1 percentage point, Citigroup analysts Shuang Ding and Minggao Shen wrote.

Citigroup said second-quarter growth may slow to 7.3 percent.

Gareth Berry at UBS warns that the outlook for the Euro remains constrained:

"We keep our bearish view on the euro and find it hard to see how the currency can mount a sustainable rally over the coming days as investor optimism over the upcoming EU summit on June 28-29 continues to fade.

"Scepticism is entirely warranted in our view – especially given that a meeting of leaders from the Eurozone’s four largest economies in Rome on Friday produced little of substance, except a vague aspiration to create a growth fund worth EUR 130 bn."

Weekend news that the troika have postponed their visit to Greece by a week is not likely to steady nerves either.

There have, however, been some signs of improvement in Spanish sovereign bond markets where 10y yields fell again on Friday, and have dropped by more than 50 bp over the course of last week.

"Nevertheless our Euro rates strategists and our European economists remain extremely cautious at this juncture and the latter on Friday lower their Eurozone growth forecasts for 2013 to +0.4% (prev. +1.1%), citing the corrosive presence of banking sector strains and fiscal contraction," says Berry.