The US dollar was broadly stronger this morning after a tepid start to European equities saw the euro come under early selling pressure. It may be a week of limited gains for the euro as investors await the final cost of the Anglo Irish Bank bailout. On Thursday, the Irish Finance Minister is expected to notify the public of the total cost of the bank’s bailout which had to be nationalised in January 2009 during the fall-out of the financial crisis. The government has so far provided around €22.9 billion to keep the bank afloat but Standard & Poor’s estimates the final bill will be around €35 billion, or 20% of Ireland’s total GDP. A further blow came after Moody’s Investors Service downgraded Anglo Irish’s rating on unguaranteed senior debt by three notches from A3 to Baa3 this morning. Ireland last week reported a surprise drop in GDP of 1.2% in the second quarter while bond yields spiked to record levels which may lead investors to question whether Ireland will be able to meet its deficit target of 3% of GDP by 2014. While Ireland’s debt worries will weigh on the euro, even deeper concerns of the health of the US economy may support EUR/USD in the near term. According to a report from Morgan Stanley ‘As the market worries about another round of Fed quantitative easing, we believe that [the euro] is one of the few logical currencies to own. [1] David Choe, London

 

Notes: Source: [1] Wall Street Journal (27 September 2010). Chart data sourced from Bloomberg