Euro Exchange Rates Today: EUR Strong; But Spot Rate Still Divorced from Yields, Summers Moves are Overdone

A look at the latest euro exchange rates shows:

• The Euro Dollar exchange rate is 0.53 pct higher; EUR/USD at 1.3366.
• The Euro Pound exchange rate is 0.1 pct higher at 0.8382.
• The Euro Australian Dollar exchange rate is 0.7 pct lower at 1.4278.
• The Euro New Zealand Dollar exchange rate is 0.35 pct lower at 1.6303.

PS: The above quotes are wholesale; your bank will charge a discretionary spread when passing on their retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please find out more here.

The EUR has popped higher along with all other currencies against the USD on the back of weekend news that Summers is out of the running for Fed Chairman.  

Euro detached from interest rate spreads; Summers rally overdone?

Treasury yields are also sharply lower on the news which has pushed German-US spreads in favour of the EUR.  

"As we have pointed out over the past week however, German-US spreads are still notably divorced from their relationship with the EUR/USD spot rate over the past year.  The current spread is still more consistent with a spot rate near 1.30," says Shaun Osborne at TD Securities.  

Osborne says that it’s also worth noting that peripheral EZ yields have moved wider v. core yields in overnight trading, suggesting the persistence of a bit more risk aversion than indicated elsewhere in the markets.

"All that suggests to us that the initial reaction to the Larry Summers news may be a bit overdone, and overall we still favour selling into the overnight rally," says Osborne.

Euro dips on Draghi comments, Dollar weakness widespread

Global markets continue to trade in positive territory heading into the afternoon as investors welcome the withdrawal of Larry Summers from the Federal Reserve and an agreement between the US and Russia for destroying Syria’s chemical weapons.

"The dollar weakened against the majority of major peers after Lawrence Summers withdrew his bid to become Federal Reserve chairman who is believed to favour scaling back QE. A separate survey of economists showed that the Fed is likely to taper its monthly bond-buying program by $10 billion to $75 billion this week," says
Lee Mumford at Spreadex.

Mumford goes on to point out that comments from European Central Bank chairman Mario Draghi today stated that the Eurozone economic recovery “is only in its infancy” and that governments must take steps to improve growth.

The Euro took to the downside before recovering later this afternoon as Draghi stated the economy remains fragile and unemployment is still far too high."

Looking to the busy week ahead, US data (today) and German ZEW survey results (tomorrow) will be the data catalysts to start the week for EUR/USD, but the obvious focus is on the FOMC announcement on Wednesday.  

The TD Securities US strategists see a greater risk of a more dovish tilt to the Fed’s overall message, and that should favour the higher yielding currencies most.  

"In terms of EUR-cross implications then, further EUR/AUD downside could be among the most significant," says Osborne.