Pound V euro: GBP surges against EUR after Italian banking news

THE pound surged against the euro at the start of this week’s session following reports that Italy would need to bailout two more of its banks.

Exchange ratesGETTY

The pound surged against the euro at the start of this week’s session

Sterling is currently trading at around €1.138, with GBP/EUR having risen from lows of €1.135.

The GBP/EUR exchange rate got off to a strong start this morning after Rome was forced to bailout two more of Italy’s banks, casting further concerns over the state of the country’s banking sector.

The Italian government announced that Veneto Banca and Banca Popolare di Vicenza would be bailed out by the Italian tax payer to the tune of €5.2bn, with their “good assets” being acquired by the Intesa Sanpaolo banking group.

The move comes after the European Central Bank (ECB) claimed that the two banks were “failing or likely to fail” and causing investor sentiment to plummet.

This is the second high profile bailout of Italy’s banking sector in just six months with the country’s oldest bank, Monte dei Paschi also being rescued at the start of the year.

However observers have been far more critical of this bailout, with many questioning the size of it. 

ExchangeGETTY

Sterling is currently trading at around €1.138, with GBP/EUR having risen from lows of €1.135

There were added concerns that it appears to be the Italian tax payers taking the brunt of the hit instead of the bondholders.

German conservative MEP Markus Ferber (EPP) said: “With this decision, the European Commission accompanies the Banking Union to its deathbed. 

"The promise that the tax payer will not stand in to rescue failing banks anymore is broken for good.

“I am very disappointed that the commission has approved this course of action. 

"By doing so the Commission has massively undermined the credibility of the Banking Union.”

Meanwhile the pound was strengthened this morning by claims from DUP leader, Arlene Foster that her party is close to reaching a deal with Theresa May to support a Tory minority government.

Mrs May is seeking the support of the 10 DUP MPs after narrowly losing her majority in the general election.

Expert guide to how exchange rates work

Markets are hopeful that the deal will help to stabilise the government and strengthen its position in ongoing Brexit negotiations, although many remain concerned that a DUP-Conservative deal will undermine talks to restore devolution at Stormont, with Northern Ireland being without a first and deputy first minister since January.

Looking ahead, the GBP/EUR exchange rate may stumble on Tuesday, depending on the tone of the Bank of England (BoE) Financial Stability report, with a more dovish outlook likely to weigh on sterling sentiment.

Meanwhile ECB President, Mario Draghi will speak in Portugal later this evening, with the euro possibly weakening if Draghi continues to sing the virtues of the central bank’s ultra-loose monetary policy.

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