Whilst British politics are in crisis, the same is true across the channel with the latest French protests acting as a wakeup call for President Macron. The controversial fuel tax rises which lead to the riots on the street by the “gilets jaunes” (“yellow vests”) have now been postponed for six months after Macron was forced to back down.
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The President has come under attack having removed the tax on high incomes as soon as he became President. He has been branded a President for the rich, when he had promised major reform in his election campaign. Whether the concession from the French President will be enough remains to be seen but the stealth at which these riots happened would suggest that Macron will need to tread carefully or there could be another major protest under his watch if change is not swiftly brought about. Any further tensions could pile the pressure on the euro as political uncertainty is seen as negative for the euro.
The political problems the EU faces also impact on the European Central Bank’s policy making. The ECB will conclude its asset purchasing scheme in its entirety before year end as it has outlined in its guidance earlier this year. However there has been a slowdown in the EU economy with particular concern for Germany and also Italy which saw their economies contract; this could force a policy change from the ECB.
The ongoing trade wars between the US and China and general protectionist policies under President Trump could see a looser monetary policy from the ECB.
At the moment the expectation is that the Central Bank will look to raise interest rates in the Autumn of 2019, and an easy way to stimulate growth would be to delay that first interest rate increase.
With no EU economic data releases to end the week, focus is placed on next week’s ECB interest rate decision. Any suggestion that the next interest rate increase could be delayed could see the euro weaken.
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