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EUR GBP Rallies from Lows as Italy Bails out Failing Banks

The Euro Pound (EUR GBP) exchange rate recovered from a brief slump yesterday morning following the announcement that the Italian government would be bailing out two of its major banks.

Euro (EUR) Strengthens as Markets Relieved by Bank Bailout

The Euro rallied against the Pound Monday afternoon as markets recovered from their initial shock at learning that Italy would be rescuing two of its banks and welcomed the move by Rome.

Investors are hopeful that the deal, which will see Vento Banca and Banca Popolare di Vicenza banks being wound down, with the ‘good assets’ absorbed into the Intesa Sanpaolo banking group, will help to stabilise the nation’s banking sector, which has long been a cause for concern amongst observers.

David Madden, market analyst at CMC Markets said;

‘The bailout could cost the Italian tax payer up to €17 billion. There are still questions still hanging over the Italian banking sector, but for now investors are content with the Continent’s financial health.’

There are still some concerns over the rescue however, chief among which is the size of the bailout, with taxpayers set to bare most of the burden, despite EU rules requiring bondholders to take the brunt of the debt.

Pound (GBP) Stabilises as Tory-DUP Deal Finalised

Despite some volatility in the morning the Pound was able to stabilise close to is starting levels against the Euro on Monday evening following the signing of a formal pact between the Conservatives and the Democratic Unionist Party.

The deal comes over two weeks after the election, which lead to a hung parliament as the Tories lost their majority and cast a great deal of political uncertainty over Sterling.

The agreement will see the DUP’s 10 MP back Theresa May’s minority government giving her the seats needed to push through legislation, particularly in regards to Brexit and security.

While investors are pleased that a deal has been finally agreed upon, and that it appears May position as Prime Minister is secure for now, she is likely to face increased criticism from other devolved governments in the UK over her agreement to provide £1bn in extra funding for Northern Ireland.

EUR GBP Forecast: Draghi Speech Ahead

The EUR GBP exchange rate may stumble later this morning as European Central Bank (ECB) President Mario Draghi makes a speech in Portugal, analysts expected Draghi speech to reinforce his outlook on the European economy and the need for ultra-low interest rates.

This will likely disappoint many investors who may be hoping for a more upbeat outlook from the ECB president following the continued growth in the Eurozone.

Meanwhile direction of the Pound this morning is likely to be dependent on the tone of the Bank of England’s (BoE) latest financial stability report, with Sterling sentiment likely to weaken if the report strikes a more dovish tone.

Current Interbank Exchange Rates

At the time of writing the EUR GBP exchange rate was trending around 0.8795 and the GBP EUR exchange rate was trending around 1.1369.