- ‘Brexit’ Jitters Drive EUR GBP Higher – Markets expect consumer spending to plummet in 2017.
- Monte dei Paschi Misses Funding Window – Euro resistant despite banks now expected to receive government bailout.
- UK to Release GDP Data later this Morning – Predicted growth likely to bolster Pound.
The EUR GBP exchange rate continued to tick higher on Thursday thanks to growing concerns over the impact of ‘Brexit’, which dragged on the Pound.
Euro Pound (EUR GBP) Bolstered by ‘Brexit’ Jitters
The Euro Pound (EUR GBP) exchange rate rose further yesterday as market fears over the impact of ‘Brexit’ began to flare once again following the latest GfK confidence data.
Despite a rise from -8 to -7 the UK’s December Consumer Confidence report as spending increased ahead of Christmas, the value of Sterling began to slide as markets speculated that sentiment would see a notable drop next year.
Economists forecast that rising inflation and price hikes, as retailers renegotiate with suppliers at the beginning of next year, will cause a drastic decline in consumer spending, with the current bump being driven by shoppers wishing to purchase more expensive electronic items before prices go up. As Joe Staton, Head of Market Dynamics at GfK explained;
‘While consumers remain relatively confident about their personal financial situation, confidence in the general economic situation for the UK has collapsed in the face of uncertainty about the future both at home and abroad. Despite everything, consumer resilience is shown by strength in the major purchase index, the ‘now is a good time to buy’ mantra being reflected in strong retail sales growth.’
Euro Pressured as Monte dei Paschi Fails to Attract Private Investors
The Euro did start to dip in the afternoon however as the beleaguered Italian bank Monte dei Paschi failed to raise €5bn from private investors before the 2pm CET cut-off point to reach a deal, imposed by the European Central Bank.
The final nail in the coffin came on Wednesday as the Qatar sovereign wealth fund declined to invest in Italy’s third largest bank, leaving it -€3bn short of its target.
Markets now expect the bank to be bailed out by the Italian government by the end of the week after it recently sought approval to borrow €20bn in order to prop up Italy’s struggling banking sector.
There are growing concerns however that the €20bn set aside will still not be enough to help Italy’s banks clear their bad debt, as the banking sector will also need wide reaching reforms, says Mihir Kapadia, CEO of Sun Global Investments;
‘Given this, the Italian government’s efforts cannot end with simple state support, but rather large-scale banking reforms and stringent policy measures are needed. Unless this is achieved a banking crisis looks almost inevitable.’
EUR USD Exchange Rate Forecast: Rise in UK GDP May Bolster Pound before Holiday Period
The EUR GBP exchange rate may slide later this morning as Britain releases its last GDP report for the year, which economists predict will show UK growth rose from 2.1% to 2.3% in the third quarter, likely helping the Pound rally from its decline this week.
Meanwhile The Euro may attempt to counter Sterling advances with the release of Germany’s own consumer confidence survey from GfK. While forecast to drop from 9.8 to 9.7 in January, a similar jump to that seen in the Eurozone confidence survey earlier in the week could help propel the single currency even higher.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.84 and the GBP EUR exchange rate was trending around 1.17.