The euro fell to the lowest level against sterling in 5 months yesterday after comments from Brexit Secretary Dominic Raab suggested that the latest Cabinet meeting had been a great success for the UK. This is particularly poignant because Raab has been pushing for an agreement on the Irish backstop, which has been one of the main points of contention between the UK and EU. Leaving the meeting and giving a ‘thumbs up’ provided investors with confidence that the UK is another step closer to agreeing a Brexit deal, and caused the Pound to strengthen against the Euro reaching 5 month highs of 1.14759.
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This was despite positive European data releases including Markit Services PMI (Purchasing Managers Index) and Composite PMI data signalling expansion in the Services and Manufacturing sectors in October, compared to the previous month.
One of the main topics helping to keep the euro’s value low against the pound and US dollar is the concerns regarding the Italian Government’s 2019 budget. After the European Commission rejected its plans yesterday and requested changes to be made within a week, by 13th November. The current budget would push Italy’s debt even higher due to increased spending plans, however as this currently stands at 131.2% of GDP (Gross Domestic Product), the European Commission stood firm on rejecting the Budget.
If Italy doesn’t adhere to the guidelines set out by the European Commission , it could bring forward an assessment on Italy’s compliance on rules regarding its high levels of debt to 21st November, long before its original date in May 2019.
In short, Italy could face a fine from the European Commission if it doesn’t comply with its guidelines, which would be viewed negatively by investors holding their funds in the euro.
Clients with a euro requirement would be wise to look out for the European Commission’s Economic Growth Forecasts, and the European Central Bank’s Economic Bulletins, which will both be released on Thursday. These could give some guidance on the future of the European economy and therefore the value of the euro in the months ahead.
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