Euro gets a boost as banking bailout a possibility

After struggling in recent weeks, losing 7 cents within a month against the Pound and getting closer to all-time lows vs the US Dollar, the Euro has been boosted this week on hopes of a much-needed banking bailout in Italy. The current Italian PM, Matteo Renzi failed in his bid to bring about banking reform within Italy after holding a Referendum this past weekend. Most analysts were expecting Euro weakness should Renzi lose in his bid, but the currency markets have surprised us once again.

The Euro being bolstered after initially dropping to its lowest level against the Pound since July.

The reasons behind the Euros strength are Renzi has agreed to delay his resignation for a week in order to oversee the last Italian Budget of 2016, and this softened the blow to the Euros value.

Secondly late on Tuesday night Reuters announced that the Italian Government could take another €2bn stake in Monte dei Paschi (the world’s oldest bank), whilst yesterday morning La Stampa (an Italian newspaper) announced that the Government could ask for a €15bn European Stability Mechanism Loan to aid not only Monte dei Paschi but other struggling banks also.

What factors are currently influencing Pound to Euro exchange rates?

Much of the talk about the UK retaining access to the single market is coming from the UK at the moment, but I think the EU will be keen to come to a mutually beneficial solution as without the UK’s contributions, the EU will have a large income fall.

I expect talk of the UK’s conditions on leaving the EU to continue to drive Pound to Euro exchange rates, and with both currencies being driven mostly by sentiment it can be difficult to judge their next move. With that in mind its worth preparing for these short-term movements as they can happen very quickly so do feel free to get in contact. Two key figures to listen out for are David Davis (Brexit Secretary) and Michel Barnier (lead EU negotiator on the Brexit).

Pound to Euro exchange rates maintain their volatility this side of Christmas, due in most part to Brexit related events. It may be prudent to consider taking out a forward contract to lock in current rates of exchange in the event the market moves against you. Call us on 01494 725 353 or email me here if youd like to learn more about how this works.


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