- Italian Banking System in Trouble – PM considers breaking EU banking union rules by using public funds to bailout
- EUR Exchange Rates Recover – Brexit fallout continues to undermine investor confidence, however
- EUR GBP Forecast to Hold Gains – Sterling struggles on damp business confidence
- EUR USD Predicted to Fluctuate – Safe-haven demand may see USD climb
Euro Pound Exchange Rate Holds Gains, German Factory Orders Slide
The Euro Pound exchange rate held the impressive gains recorded on Tuesday as the week continued and demand for Sterling remained limited.
The EUR GBP pairing was left trending in the region of 0.8544 despite German Factory Orders disappointing forecasts on Wednesday.
Until we some see some stabilisation in the UK’s main political parties the Pound is unlikely to stage much of a rebound against its European counterpart.
(Previously updated 05/07/2016)
EUR Exchange Rates Recover despite Rising Bond Prices
Despite the fact that safe-haven demand caused bond prices to rise, limiting the impact of the European Central Bank’s (ECB) asset purchase programme, EUR exchange rates recovered in the early stages of Tuesday’s European session.
The EUR GBP exchange rate advanced by around 1.1%, whilst the EUR USD exchange rate edged higher by around 0.2%.
The Euro held gains despite annual Eurozone retail sales falling slightly short of the mark. The 1.6% sales figure was less than the 1.7% result anticipated. However, consumer spending increased by 0.4% on the month, as expected.
Markit Watch said this of the data: ‘Low inflation and a gradually improving labor market have bolstered private consumption, as the eurozone’s jobless rate fell to its lowest level in almost five years during May. But economists warn that heightened uncertainty after the U.K.’s vote to leave the EU will weigh on sentiment and economic activity on both sides of the Channel.’
(Previously Updated July 4, 2016 @ 16:50)
Amid concerns that Brexit contagion will cause the eventual demise of the European Union, as well as Italian defiance causing the end of the Banking Union, EUR exchange rates softened during Monday’s European session.
As the session progressed the EUR GBP exchange rate held losses, but the EUR USD exchange rate improved to trend within a limited range. This was despite slightly reduced risk-appetite as European stocks slide.
(Previously Updated July 4, 2016 @ 14:28)
EUR Exchange Rate Struggles against Sterling despite Weak UK Construction
The fallout from Brexit continues to have a detrimental impact on demand for the single currency, with nearly all EUR exchange rates registering losses.
One of the major concerns for investors is that the UK’s EU divorce has provided many European populist parties with a louder voice.
Should several EU member states hold in/out referendums of their own, the uncertainty alone could lead to the demise of the European Union and even the single currency itself.
On Monday morning the EUR GBP exchange rate is holding fractional losses, although there has been a mild recovery from intraday lows.
Sterling began trade on the front foot as traders took advantage of the low trade weighting, but disappointing construction data limited GBP appeal.
June’s UK Construction PMI was forecast to drop from 51.2 to 50.7, but the result actually tumbled to 46, which is well below the 50 mark that separates growth from contraction.
‘Construction firms are at the sharp end of domestic economic uncertainty and jolts to investor sentiment, so trading conditions were always going to be challenging in the run-up to the EU referendum,’ said Tim Moore, an economist at survey compilers Markit. ‘However, the extent and speed of the downturn in the face of political and economic uncertainty is a clear warning flag for the wider post-Brexit economic outlook.’
The far weaker-than-anticipated pre-Brexit construction output has significantly heightened chances that the Bank of England (BoE) will inject additional stimulus in the short-term.
The EUR GBP exchange rate was trending within the range of 0.8352 to 0.8400 during Monday’s European session.
EUR Exchange Rates Weaken against USD on Italian Banking Crisis
The crisis facing Italian banks and the EU Banking Union is considered by many to be more of a threat to EU stability than the UK’s Brexit.
Italy is in talks with the European Commission to receive a bailout to prevent a financial crisis, but concerns that the process will take too long has prompted Italian Prime Minister Matteo Renzi to consider defying EU rules by using public funds rather than creditors.
‘We are willing to do whatever is necessary [to defend the banks], and do not rule out acting unilaterally, although that would only be as a last resort,’ said an Italian government insider.
If Italy is refused bailout, or if it chooses to defy EU rules, the fallout could be considerable as Rachel Sanderson describes in the Financial Times;
‘Matteo Renzi, the Italian prime minister, is determined to intervene with public funds if necessary despite warnings from Brussels and Berlin over the need to respect rules that make creditors rather than taxpayers fund bank rescues, according to several officials and bankers familiar with their plans. The threat has raised alarm among Europe’s regulators, who fear such a brazen intervention would devastate the credibility of the union’s newly implemented banking rule book during its first real test.’
EUR exchange rates are holding losses against the US Dollar despite reduced demand for safe-haven assets after Asian stocks advanced considerably.
With US markets closed for Independence Day and with a complete absence of domestic data, the EUR USD exchange rate is likely to hold losses unless there is a positive development regarding Italy’s banking crisis.
The EUR USD exchange rate was trending within the range of 1.1096 to 1.1148 during Monday’s European session.