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Home Financial Banking RBS: Euro close to fair value vs dollar
RBS: Euro close to fair value vs dollar PDF Print E-mail
Written by Will Peters   
Monday, 12 July 2010 09:27
Exchange rates and interest rate report released by RBS.


RBS (LON:RBS) have said they believe the Euro is reaching fair value against the Dollar.

The Euro Dollar exchange rate is 0.427% lower on the hour with 1 EUR = 1.2591 USD at 9 AM in London.

In a monthly report on exchange rates, RBS analysts say:

"We think the euro is already close to fair value against the dollar, suggesting that any significant movements are likely to
reverse over time.

"On a long-term basis we expect the pound to move towards its fair value of c1.60 against the greenback and 0.75 against the euro."
 
It was yet another volatile month in the foreign exchange markets. The dollar came under some downward pressure amid signs that economy is too fragile for the Federal Reserve to start tightening monetary policy any time soon.

The greenback lost some of its earlier ‘safe-haven’ gains, falling 7c against the pound and 7c against the euro.
 
"The main theme driving the euro last month was the expiration of the ECB’s one-year special liquidity operation. More than
1100 banks had to repay €442 billion borrowed this time last year," says the RBS report.

Ongoing strains in Eurozone sovereign debt markets are likely to keep the euro under significant pressure for some time.

To alleviate financing needs, the ECB offered unlimited three month loans that will keep banks going until at least the end of the year. In the event, banks raised €132 billion using this shorter-term facility, much less than €250 billion forecast, easing investors worries about banks’ funding requirements and helping the euro to rally.

Markets also reacted positively to the UK’s ‘emergency Budget’, which looks to have dampened fears about a possible UK credit rating downgrade, helping the pound move higher against the dollar.  

The Budget included measures that could help the MPC achieve its mandate over the longer-term. Policymakers around the
world have been struggling with the issue of how to deal with asset price bubbles.

The creation of a Financial Stability Committee may help solve the problem say RBS.

"Its mandate and policy tools have yet to be announced, but the hope is that it will help to prevent asset prices becoming a threat to the financial sector and the wider economy – most likely by limiting credit growth at the first sign of trouble. This will allow the MPC to focus squarely on keeping inflation at its target rate" reads the RBS report.