- EUR GBP Sees Brief Rally – Thin trading allows for mystery spike.
- Italian Banking Crisis Weighs on Euro – Italian economic Minister criticises ECB for its assessment of MPS capital shortfall.
- ‘Brexit’ Sentiment Continues Sliding – Persistent fears pressure
The EUR GBP exchange rate briefly spiked overnight during thin trading in Asia but quickly fell back again as the European session began and Italy’s banks continued worrying traders.
Euro Pound (EUR GBP) Hit by Mysterious Spike
The Euro Pound (EUR GBP) exchange rate jumped in overnight trading, surging by around 50pips for seemingly unknown reasons, with some speculating that it was a ‘fat-fingered’ trade. As Ray Attrill, global head of currency strategy at National Australia Bank, explained when comparing EUR USD;
‘Whether somebody accidentally pressed a button or algo trades were triggered, nobody knows, If it tells us anything about what January has in store, it may be that it’s going to be a choppier ride for the dollar relative to the cosy dollar-bullish consensus that prevailed in the run up to Christmas.’
With the single currency quickly receding by the end of the Asian session, most economists have been willing to put the rally down to thin trading volumes.
Monte dei Paschi Bailout Pressures Euro (EUR)
The Euro continues to be pressured by the bailout of Italy’s third largest bank, Monte dei Paschi (MPS), following the European Central Bank’s (ECB) assessment of the bank’s capital shortfall.
The ECB reports that MPS’s shortfall is actually around €8.8bn, far higher than the €5bn it had been seeking from private investors over the last few weeks.
However the assessment has been criticised by Italy’s Economic Minister, Pier Carlo Padoan as he called for the central bank to explain what had lead it to nearly double its estimate of MPS’s capital deficit.
‘It would have been useful, if not kind, to have a bit more information from the ECB about the criteria that led to this assessment.’
Markets have becoming increasingly concerned over the state of Italy’s banks in recent months, with many analysts speculating that simply injecting money and bailing out banks will not be enough to save Italy’s struggling banking sector.
‘Brexit’ Jitters Continue Weighing on Pound
The Pound has been unable to gain any ground against the Euro this week as markets become increasingly concerned about the impact of ‘Brexit’ as the triggering of Article 50 in March rapidly approaches.
Most disconcerting for investors however, is the UK government’s continued refusal to release its plans for ‘Brexit’, casting a great deal of uncertainty over the entire process, with traders forced to speculate on whether Britain will remain part of the single market or whether the government will instead prioritise stronger immigration controls in a ‘hard Brexit’.
EUR USD Exchange Rate Forecast: German CPI Due on Tuesday
The EUR GBP exchange rate may climb higher next week as Germany releases its latest Consumer Price Index, which is expected to show that inflation jumped from 0.8% to 1.4% in December.
Germany will also release its latest Unemployment figures on Tuesday, although it is unlikely to have any major impact on the Euro as it is expected to hold at 6% in December. However a surprise fall could see the single currency jump.
Meanwhile the Pound is likely to slump at the start of the week as Markit releases its latest UK Manufacturing PMI, which is expected to have dropped from 53.4 to 53.2.
Current Interbank Exchange Rates
At the time of writing the EUR/GBP exchange rate was trending around 0.86 and the GBP/EUR exchange rate was trending around 1.16.