Jonathan Watson
Associate Director
Euro weaker as Italian PM resigns
Italian Political Uncertainty causes the Euro to lose ground against other major currencies.
Request a quoteThe euro lost ground in trading yesterday, after Italian Prime Minister Giuseppe Conte, of the 5-Star Party resigned in the afternoon. In his speech afterwards he was critical of his coalition partners, in particular Matteo Salvini who he accused of political opportunism and engineering this outcome.
Salvini, who was in a fragile coalition with Conte, under his nationalist League party, could be lining himself up to be the next PM, but the next stages maybe largely determined by Italy’s President Sergio Mattarella. He could either ask Conte to form another government or call snap elections, which may be scheduled in October.
Political uncertainty historically, has the potential to weaken a currency, as investors become fearful over what might lie ahead. With Italy, such political concerns could beamplified, because Italy is the 3rd largest economy in the Eurozone, and with the market fearful over the huge 131% of GDP debt burden, second only to Greece in the Eurozone, there could be increased economic concerns ahead.
This is all against the backdrop of Italy being required to implement a new budget for 2020 that needs to meet EU rules, a task that was difficult, but which might now be even harder to execute. The euro lost ground yesterday against the US dollar and the pound and is trading currently at 1.0941 on GBP/EUR interbank rates, and EUR/USD is at interbank rate 1.1096.
What else could drive the Euro?
In economic news this week, we have the latest ECB (European Central Bank) Monetary Policy Minutes tomorrow. Investors are currently trying to asses the likelihood of further economic stimulus ahead for the eurozone, with the next meeting pencilled in for the 12th September. The economic theory suggests any changes in monetary policy could see euro movement, this could potentially be being factored into rates now.
Another key area of focus is the German economy. Germany finds itselfs on the brink of a recession, defined as two quarters of consecutive negative growth. German GDP (Gross Domestic Product) fell 0.1% in Q2 of 2019, and the German central bank, Bundesbank, forecasted recently a continuing decline in the Autumn.
GBP/EUR interbank levels have been volatile since 25th July and today, owing to a mix of continued Brexit uncertainties, against a series of mounting concerns on the euro ahead as detailed above. For clients looking to a GBP/EUR transfer there are many factors currently affecting the currency pairing, you may wish to speak to us regarding your options and the latest currency news.
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