Royal Bank of Scotland Plc (LON: RBS) said that the Euro may increase its lead on the dollar to $1.30 before slumping against the stateside currency because of continued concern about risk from sovereign deb in European countries after last week’s stress tests.
The general view “is that the tests weren’t rigorous enough and haven’t eased underlying worries that the Euro area banking system is under-capital and/or that Greece restructures at some point,” Melinda Burgess, a foreign-exchange strategist in London, wrote in a note today. While the euro-dollar exchange rate “has scope to make another break into the $1.30’s in the near term, this doesn’t change our view that the pair is set to head lower over the coming quarters.”
European regulators posted the results o the stress tests last week, showing 7 out of 91 lenders failed to meet the tests and needed to raise a combined 3.5 billion euros ($4.5 billion) of capital.
“There’s still a feeling that three, six or even nine months down the line the market will still be wondering about sovereign risks related to the European banking system,” wrote Burgess.
The euro rose 0.1% against the dollar on Monday, trading at $1.2927 in London.
