Last week was a difficult week for the Eurozone both politically and economically following the decision for Matteo Renzi to resign as PM when voters rejected a set of financial reforms put forward. The need for Italy, the Eurozone’s fifth largest economy, to install a new government was increased on Friday when the European Central bank rejected a request from Monti Dei Paschi di Siena for extra time to raise capital among its investors. When this news was announced, the Euro weakened, which helped GBP/EUR to hit 1.19.
I personally believe that this could spell further Euro weakness. In the summer, it emerged that the MPS was the worst loser in the European bank stress test. MPS are not alone in the need for bailouts, with Poplare di Vincenza among other Italian banks also seeking help from the European Central Bank. With such a dire financial situation emerging, I think that we could see further Euro weakness in the months to come.
The news surrounding Italy’s banking crisis has helped Italy to pick Paolo Gentiloni, the former foreign minister to replace Matteo Renzi as the new Italian Prime Minister during what has been labelled as a political crisis for the Eurozone.
This week holds the highly anticipated interest rate decision in the United States, where it is now considered certain that they will look to raise interest rates. Investors will likely move funds out of the Euro and into the US Dollar in order to capitalise on the benefits of a country with a higher exchange rate. There is also a raft of important data this week, including inflationary data and industrial production figures which are both set for a decrease from the previous figure, so it will be interesting to see if this translates into further Euro weakness.
A busy week for the Pound and Euro with further movements likely if the FED raise US interest rates on Wednesday. It may be prudent for clients to get in touch with their assigned broker early this week if they have an upcoming currency transfer. Call us on 01494 725 353 or email me here if you would like to discuss your needs.
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