The Euro may extend gains past $1.30 on this recent rally before slumping against the dollar because of continued concern about sovereign risks to European banks after last week’s stress tests. The general view is that the tests carried out on 91 European Banks weren’t rigorous enough and haven’t eased underlying worries that the Euro area banking system is under-capital and/or Greece restructures at some point. European regulators posted the results of bank stress tests last week, showing seven out of 91 lenders failed and needed to raise a combined 3.5 billion euros ($4.5 billion) of capital. There is still a general consensus that three, six, or nine months down the road the market will still be focusing on sovereign risks related to the European banking system.
The Australian and New Zealand dollars rose to the strongest levels since May against the greenback as signs the global economy is stabilizing spurred demand for higher yielding assets. The Reserve Bank of Australia meets to review monetary policy on August 3rd. Economists are expecting a fairly strong CPI print which will definitely put the pressure on the RBA to lift rates. The Aussie climbed to
.9020 U.S. cents in late trade yesterday. The Canadian dollar also benefited trading at $1.0314. There is a 27 percent chance the RBA will raise borrowing costs in August up from 13 percent a week ago.
Today's Opening Rates (Mid-Rate) (as at 08:30 E.D.T.)
| EUR/USD | 1.3038 | USD/JPY | 87.34 | GBP/USD | 1.5549 | USD/CHF | 1.0570 |
| USD/CAD | 1.0271 | AUD/USD | .9057 | NZD/USD | .7366 | EUR/GBP | .8383 |
| USD/PLN | 3.0683 | USD/MXN | 12.602 | USD/DKK | 5.7175 | USD/SEK | 7.2571 |
Equity Indices (as at 08:30 E.D.T.)
| Dow Jones | 10,525 | FTSE | 5,396 | Nikkei | 9,497 |
| ISEQ | 2,968 | NASDAQ | 2,296 | |
Indicative Opening Deposit Rates
| Time Period |
$ Deposit |
Euro Deposit |
| 1 Week |
0.30 |
0.29 |
| 2 Week |
0.31 |
0.29 |
| 3 Week |
0.32 |
0.29 |
| 1 Month |
0.32 |
0.36 |
| 2 Month |
0.40 |
0.29 |
| 3 Month |
0.48 |
0.61 |
| 6 Month |
0.70 |
0.93 |
| 9 Month |
0.88 |
1.08 |
| 12 Month |
1.08 |
1.22 |
FOCUS: E.U. STRESS TESTS
E.U. regulators scrutinized 91 of the bloc’s banks to assess whether they have enough capital to withstand a recession and sovereign-debt crisis, with a Tier 1 capital ratio of 6 percent as a floor. Seven European Union banks failed the region’s stress tests with a combined capital shortfall of 3.5 billion euros ($4.5 billion), according to the Committee of European Banking Supervisors, which coordinated the initiative. Governments are seeking to reassure investors about the health of financial institution after the debt crisis pummelled the bonds of Greece, Spain and Portugal. The evaluations took into account potential losses only on government bonds the banks trade, rather than those they are holding to maturity, according to CEBS. That means the tests are set to ignore the majority of bank’ holdings of sovereign debt, investors said.
Regulators tested portfolios of sovereign five-year bonds, assuming a loss of 23.1 percent on Greek debt, 12.3 percent on Spanish bonds, 14 percent on Portuguese bonds and 4.7 percent on German state debt, according to CEBS. The tests also assessed the impact of a four-step credit rating downgrade on securitized debt products, a 20 percent slump in European equities in both 2010 and 2011 and 50 other macroeconomic parameters, including a drop in the EU’s gross domestic product over two years.
