- EUR GBP Flat as Italy Bails Out Bank – Monte dei Paschi bailout to cost more than first anticipated.
- Pound Hampered by ‘Brexit’ Remarks – Lord King suggests there is no need for Britain to be part of the single market.
- BBA Home Loans – Unexpected drop weighs on Sterling.
The EUR GBP exchange rate continued trading flatly this week despite reports that the cost of bailing out Italy’s third largest bank, Monte dei Paschi (MPS) may rise past the Italian government’s initial expectations.
Euro Pound (EUR GBP) Flat as Cost of Banking Crisis Grows
The Euro Pound (EUR GBP) exchange rate was unmoved by comments from the European Central bBnk (ECB) that it expects the cost of bailing out the world’s oldest banks to balloon from initial estimates of around €6.5bn.
The ECB reported that MPS capital shortfall was actually €8.8bn, over 50% higher than the €5bn in capital the bank had been seeking from private investors in recent weeks.
However, officials in Rome have been quick to dismiss the ECB’s estimates, saying that the €20bn bailout fund recently approved by the Italian parliament would still be able to accommodate the rescue as the government would not have to cover the entire cost. Instead some of the burden would fall on the shoulders of the bank’s private investors, in line with new EU rules, with one senior Italian official stating;
‘Compared to the perimeter within which we designed the [bailout] fund, as well as from the point of view of Italy’s public finances, this does not change much, the fund will be able to address all the potential risks.’
The comments helped alleviate fears that costs of the bailout could spiral even higher and prevented any major depreciation of the Euro.
Pound (GBP) Buffeted by Lord King’s Comments
Pound (GBP) exchange rates have been pressured by comments from former Bank of England Chief, Mervyn King. Earlier in the week the Lord said that;
‘I don’t think it makes sense for us to pretend we should remain in the single market and I think there are real question marks about whether it makes sense to remain in the customs union.’
The remarks renewed fears that the British government may be seeking a ‘hard Brexit’, with investors concerned over the impact it may have on the UK’s economy.
However the comments were negated somewhat by the news that some ‘Brexit’ campaigners have been asking business groups across the EU to push for Britain’s continued access to the single market, in order to help prevent disruption to trade.
Drop in Home Loans Weigh on Sterling, EUR GBP Firms
The EUR GBP exchange rate has also been able to advance as Sterling was pressured by an unexpected drop in UK mortgage loans. The British Bankers Association (BBA) reported that the number of mortgage approvals fell from 40835 to 40659 in November after analysts predicted that it would rise to 41400.
Economists predict that the fall in approvals may be a sign that the UK housing market may struggle in 2017, with some even going so far as to forecast that prices could fall following years of fairly regular increases.
EUR GBP Exchange Rate Forecast: More UK Housing Data Set for Release Tomorrow
The EUR GBP exchange rate may rise tomorrow morning following the release of Nationwide’s latest UK House Price data, which is expected to show that prices fell from 4.4% to 3.8% in December, adding support to forecasts that Britain’s housing markets may recede next year.
Meanwhile a lull in any major ecostats over the next couple of days is likely to provide little catalyst for movement between the Euro Pound currency pairing, likely causing investors to focus on any muttering over ‘Brexit’ or Italy’s banking crisis.
Current Interbank Exchange Rates
At the time of writing the EUR/GBP exchange rate was trending around 0.85 and the GBP/EUR exchange rate was trending around 1.17.
