RBS

Foreign exchange rates: Euro dollar rate pushes higher, RBS fair value reached

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Category: RBS

Published on Monday, 10 October 2011 11:25

Written by Sam Coventry

Elsewhere on the foreign exchange markets GBP will be closely watched for how it settles down post QE2.

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Royal Bank of Scotland Group plc (LON:RBS) have said that the euro dollar is reaching fair value at current levels.

Risk appetite on the foreign exchange rate markets has remained buoyant into the start of the week as markets give European policymakers the benefit of the doubt ahead of the early November deadline to deliver a credible solution to the Euro-zone debt crisis.

Euro dollar has continued to push higher, supported by positioning, "although has now caught up with our estimate of short-term fair value at 1.3550," say RBS in a foreign exchange note to clients.

However, RBS do warn that as we move into US earnings season there could be scope for a few positive surprises given the recent fall in equity markets and reining in of earnings expectations.

"Thus, while we remain sceptical around the ability and will of Euro-zone policymakers to deliver, and continue to forecast further easing from the ECB as growth shows signs of deterioration, it is probably too early to begin establishing short EUR/USD positions yet," say RBS.
 
Elsewhere on the foreign exchange markets GBP will be closely watched for how it settles down post QE2.

The GBP TWI actually rallied after the announcement of QE1 and positioning is even more stretched this time around.

"However, GBP gains back then came at the same time as risk rallied. GBP did best against the currencies that had benefitted the most from the financial crisis (USD, JPY and CHF) and struggled against those currencies that had higher interest rates and/or those that had potential to raise them (AUD, SEK and to a lesser extent CAD). Providing risk appetite remains supported this week, trades such as short GBP/CAD and short GBP/AUD should perform well again this time round," say RBS.