GBP EUR Sinks Again as Second Rail Strike Looms 

GBP EUR Sinks Again as Second Rail Strike Looms 

The GBP EUR exchange rate was higher on Thursday despite the latest failure of talks over rail strikes, with another walkout set for Thursday. Continued stalemates in talks will hurt the UK economy and business leaders warned of effects on investment and tourism. The pound was higher after business surveys for the eurozone were weaker. 

The GBP to EUR is trading at 1.1658 and will try to press higher in the coming sessions. 

Another rail strike looms for weary British commuters 

Talks between the RMT union and rail operators failed again. The second of three strikes went ahead Thursday. 

The RMT wants operators to raise their 3% pay increase offer closer to the 9% inflation rate, but the union blames the government for “shackling” the groups.  

In the current climate, both the Prime Minister and Bank of England Chief asked workers not to push for pay rises in order to avoid a wage crisis. The government now knows that if rail workers get a larger pay rise, it will set that event in motion and they are digging their heels in. 

The postal service has a vote looming on industrial action. Now, the teaching unions are threatening a strike in the autumn. Yesterday’s inflation rate for the UK in May was 9.1% . The BoE said that 11% is possible in the autumn. If those figures don’t pull back from the peak quickly, the current problems could drag on into 2023. 

Italian bonds weaken on 5-Star split 

Italian bonds saw premiums rise on Wednesday after one of the parties supporting the Draghi government split over their Ukrainian policy measures. 

The country’s Foreign Minister confirmed that he will leave the 5-Star Movement, which is Draghi’s biggest party in the coalition. The resignation could lead to the party leaving the Prime Minister’s coalition and increasing pressure on the Italian debt market. 

The split raises the likelihood that 5-Star, under Conte, will leave Draghi’s government, narrowing the political base for a government that has no direct democratic mandate. The spread between Italian and German 10-year bonds jumped to 206 basis points, from 199 on the news.  

That is bad timing for the European Central Bank, which stated only a week ago that they would intervene to avoid debt market problems. Investors are worried that the ECB unwinding its pandemic support would cause fragmentation among nations with weaker economies. 

Italian 10-year bond yields had jumped to 4% this month to widen the German spread to 240 basis points.  The latest Italian government news sent them higher again. Consequently, we may see the ECB act sooner, rather than later, to cool the market. 

According to Bloomberg, Pierre Wunsch, an ECB member, said policymakers are “very open” to acting if markets pushed Italian debt too high. Another member, Isabel Schnabel, remarked that the ECB can adapt “flexibly and quickly” to problems of fragmentation. 

The euro was lower after the final reading of the PMI business indicators showed slowing growth. The latest reading was 51.3 after expectations of 53.1 and was just above the 50 contraction level.