Lewis Edmonds
Affiliate Relationship Manager
Euro Weakness on the Horizon? ECB and political issues
Eurozone unemployment were released yesterday at the lowest level seen for 9 years, further proof that the Eurozone recovery is underway.
After a hung parliament in Italy last month, the 5 Star Movement has made steps to form a Government. Markets will be closely watching updates on this as it has the potential to impact the Euro. This forecast looks at how this among other factors could affect the Euro in the coming weeks. 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 week.
| Currency Pair | % Change | Difference on £200,000 | |
|---|---|---|---|
 GBP |  EUR | 0.96% | €2200 EUR |
Euro Area inflation lifts to 1.4%
Eurozone inflation picked up last month, rising to 1.4% in March and edges closer to the 2% target set out by the European Central Bank. This presents a stronger argument for policymakers to put an end to the current €30bn per month Quantitative Easing stimulus at some point this year.
In addition to this, the unemployment rate dropped to its lowest level in 9 years yesterday, confirming that the Eurozone recovery is well in swing.
Despite the pickup in headline inflation (volatile products such as fuel and tobacco) core inflation remained subdued. This is likely to cause the European Central Bank to continue to take a cautious approach regarding monetary policy adjustments.
With yesterday’s data in mind, analysts still believe that the European Central Bank will start to unwind its Quantitative Easing programme completely sometime after September 2018 and will look to raise interest rates at some point next year. I believe that this has helped to keep the Euro strong and any deviation on this timeframe is likely to impact the Euro severely and unless core inflation starts to pick up, I would largely expect this to be the case.
Italian Political update: Crunch time as talks to form Government begin
Italy’s anti-establishment 5-star movement proposed a German style governing contract with as formal talks began on forming a government, just a month after the election result ended in a hung parliament.
This could cause some problems for the Euro.
The Government need to form a coalition deal, however this can take time and still end up in deadlock and could even force another referendum in Italy, the Eurozone’s third largest economy. Political instability will cause investors to leave the single currency and cause it to weaken.
These talks over the next few weeks are likely to be closely watched by investors. A 5 star-League coalition is likely to cause investors to pull out of the Euro due to its combination of unemployment handouts and drastic income tax cuts. Keep in touch with your broker to make sure you are well informed as to how this will affect your trade.
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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