The euro weakened yesterday and during trading this morning as concerns rise over the current path of Italian debt concerns. Yesterday, the Italian Government agreed a raft of expensive measures, borrowing and spending, in its budget. Italian bond yields, which indicate the risk associated with paying back debt, jumped and the euro is marginally weaker against its peers. The below euro report discusses potential changes to the EU's monetary policy along with economic data due out for the Eurozone today; the table shows the difference in exchange rates for GBPEUR during the high and low trading points of the past month.
|Currency Pair||% Change in 1 month||Difference on £200,000|
Despite Mario Draghi’s promise to do ‘whatever it takes’ to save and support the euro, investors' nerves could be sensitive to any negative sentiment ahead. Italy’s debt is 132% of GDP, compared to Germany with 68% and France with 98%. Greek debt is 180% and the UK’s is 88%. Italy are clearly at the more worrying end, any signs that this will deteriorate further could put pressure on the euro.
Today has some interesting points ahead for clients concerned with the euro, notably Inflation data at 10:00am UK time. The European Central Bank (ECB) is using this as an indicator as to how well their current monetary policy plans are performing.
Following years of economic stagnation, the ECB is using a Quantitative Easing (QE) program to boost growth. QE is the purchasing of bonds by a Central Bank to boost growth, and this is now being wound down by the ECB. However, the market is keen to see if the Eurozone economy is strong enough to take this economic stabilizer off, today’s news will shed light on this situation.
GBPEUR movement is principally down to how well the market views Brexit and the progress made towards the final arrangements. With the current book-maker odds of about 30-35% chance of a no-deal Brexit, the pound is by far the weaker.
Despite increased expectation of progress in the weeks ahead, clients buying euros with pounds should be treading very carefully. Whilst we might see a sudden unexpected piece of news (this is Brexit after all), what seems most likely to me are more long and drawn out negotiations.
Any final deal will need ratification by both the UK Parliament and the EU members, so nothing should be taken too much for granted. A second referendum or another election are just two plausible outcomes that may derail rates. Just like in the gameshow Deal or No-Deal, clients buying euros with pounds appear forced into tough decisions. And, just like in the show there is a real chance that holding on and on will only lead to disappointment as the various outcomes remain on the table.
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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