During the last few days the euro has begun to slowly weaken against both the pound and the US dollar after it was revealed that the country is struggling with its deficit.
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Yesterday afternoon, Italy’s Government dismissed concerns that the European Commission will turn its back on the Italian’s plan to increase its spending next year which would increase its deficit. However, the coalition Government which consists of the 5 Star Movement and the right winged Lega party did decide to try and keep to its original plans of keeping the deficit at its current level of 2.4% for the next two years.
Italy is one of the Eurozone’s leading economies by size, and forms part of the G10 which is the world’s leading economic groups. This news about the deficit should raise some concerns for anyone currently holding euros.
With the Italian banking sector still under pressure all is not looking too positive for Italy, and if it wasn’t for the uncertainty surrounding the UK and Brexit I think this could cause further weakness for the single currency if the problems persist.
Italy will reveal its latest set of Retail Sales data for August at 09:00am, with the expectation for a 0.2% increase month on month so any signs of a slowdown could see euro weakness to begin the morning’s trading session.
With less than two weeks to go before the EU summit takes place the main topic will clearly be that of Brexit. At the moment the Irish border issue appears to be getting closer to a resolution. According to one source Michel Barnier is looking at potential alternatives to those that have been offered so far with the Chequers plan. A compromise appears to be getting closer which would be good news for both the UK and the European Union as it will allow things to progress at the summit.
However, we are still a while away from any real resolution so even though the pound has made some small gains vs the single currency, there is still a huge risk of what will happen in the next fortnight.
Therefore, if you’re buying or selling euros make sure you’re well prepared for any eventuality as we are in an unprecedented period of European politics.
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