Political uncertainty in Italy following a complete break down in negotiations to form a coalition Government over the weekend appears to be making the single currency less attractive to investors. The below report discusses the long term potential impact of this on the Euro. The table below shows the difference in Euros you could have achieved when buying £200,000.00 during the high and low points of the past month.
|Currency Pair||% Change||Difference on £200,000|
Regular readers of our daily market reports will be aware of the recent slowdown in the Eurozone economy. It has been well publicised that the Euro has come off the boil, having arguably been the currency of choice for investors in recent times.
EUR/GBP rates continue to trade at some very attractive levels but the current standing has as much to do with a lack of confidence in the UK economy and the Pound, as it does with investors’ appetite for the single currency.
The major economic cogs in the Eurozone’s make up have all had their problems recently. Despite German data improving slightly this month, the “powerhouse” of the Eurozone has been unusually sluggish of late, with France also posting weaker than expected growth figures.
However, it is Italy’s current political and economic woes, which could be the cause for most concern amongst key Eurozone figureheads. The on-going political turbulence is weighing heavily on investors, who are starting to shy away from the single currency.
Over the weekend there has been a complete collapse in negotiations between the anti-establishment Five Star Movement and the far-right League to form a government. This could be seen as a positive by some, due to both parties distaste for negotiating with Brussels and the very real prospect of Italy calling a referendum similar to the one the UK had, ahead of its decision to withdraw from the EU.
However, with the likelihood now of fresh elections and another long drawn-out period of political wrangling, the negative effects this could have not only on the Italian economy but the Eurozone’s as a whole, are unlikely to drive confidence and value in the Euro.
The initial reactions have certainly been negative, with the EUR immediately losing value against both GBP and the USD.
Looking ahead and there are some key Eurozone data releases to look out for. Tomorrow we have the latest Consumer & Industrial Confidence figures, so any downgrade from last month’s reading could heap further pressure on the Euro.
This is followed by the official Unemployment Rate and Inflation data on Thursday. With Unemployment predicted to fall to 8.4%, expect the markets to factor this result in to the Euro’s value as Thursday approaches. Finally on Friday we have Manufacturing figures, so I anticipate increased fluctuation on the EUR value over the coming days.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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