The impact of Brexit on the Eurozone is yet to be witnessed, but a number of concerns surrounding Greece and now Italy will likely take center stage in Draghi's Interest rate decision on Thursday.
This week in Europe all eyes are tightly fixed on the European Central bank meeting taking place this coming Thursday. It is the first opportunity for the bank to respond and comment on the results from the UK referendum and indeed the uncertainty in the market around other member states. Both Italy and Greece have been hitting the major media outlets highlighting their economic difficulties with high levels of debt to GDP figures, the asset to cash for their banks and indeed the difficulty they are having in managing and repaying their debt.
Even though the troubles in both member states is well known by traders and therefore priced into the market, as their situations deteriorates any new stimulus or ‘special measures’ brought in by the ECB could change the value of the Euro.
Mario Draghi, the head of the ECB has been rather out spoken before and has repetitively said that he will save the euro ‘at all costs’. As a result, he could well step in with additional stimulus or a new ‘special agreement’ to mitigate the concerns in the market. The International Monetary Fund has already suggested that the debt of Greece is re-structured over a 40-year term, something I think unlikely that the ECB will agree upon. Realistically I expect the ECB to have a negative tone on the event and as a result the Euro will probably weaken on the commentary.
If you are a buyer of the Euro however I personally expect the GBPEUR levels to be at their highest this week today. UK Unemployment news expected on Wednesday will probably have a larger negative impact on the GBPEUR pairing than the ECB news on Thursday.
Longer term topics to consider are the arguments that the UK’s referendum on EU membership may have resulted in other states considering their own situation. Italy again is the next at ‘risk’, the current Prime Minister has promised to resign if a referendum on another topic is not successful. If he does leave the second largest party has promised such a referendum on its future membership in the EU if they came to power. The second point to consider longer term is the EU’s on-going investment program which has seen in excess of €80bn being pumped into their economy for over 12 months. As this continues there is an argument to suggest rewards will be seen, which if confirmed could strengthen the Euro making it more expensive to buy.
If you would like more information on these topics and how they could impact your financial situation moving forward, please feel free to get in contact with your personal broker here at Foreign Currency Direct PLC.
The issues in the Eurozone have been overshadowed by the recent Brexit, but this will likely change as the dust settles. Keeping in touch with your broker regularly is the best way to keep up to date with the latest news. Call us today on 01494 725 353.
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