Dayle Littlejohn
Senior Executive Dealer
Italian politics cause problems for the Euro
Core inflation in the EU, released at the end of the week is expected to show an increase to 1%, if this comes to fruition could offer some support to the Euro.
The Euro remains under pressure as the uncertainty in Italy continues, with questions marks around Italy's place in the EU being raised by Matteo Salvini, the leader of the League Party. 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 30 days.
| Currency Pair | % Change | Difference on £200,000 | |
|---|---|---|---|
 GBP |  EUR | 1.80% | €4,896 |
Could this be the start of the end for Italy within Europe?
At the March election Eurosceptic parties Five Star and the League won 33% and 17% of the votes respectively. Monday evening President Sergio Mattarella vetoed the appointment of Eurosceptic finance minister Paolo Savona. Instead the President appointed Carlo Cottarelli the former IMF official as interim Prime Minister.
Reports are suggesting this appointment won’t last long as another election could take place as early as September this year, and the movement on the markets would suggest the Eurosceptic parties could gain further momentum. Furthermore Matteo Salvini the League leader has stated it won’t be an election and in fact another referendum, insinuating if they gain more power and form a government they aim to pull Italy away from Europe.
Economists are split to whether an ‘Italexit’ will eventually materialise, nevertheless the euro is and I expect could remain under pressure short term. I always feared that Brexit could be the start of a domino effect and other countries leaving the European Union however I still believe the likelihood is that Italy will stay regardless if Euroskeptic parties make further headway. My reasoning, according to the European Commission, the Eurobarometer has never fallen below 58%. This survey is the support for Italy remaining in Europe.
Inflation to influence Euro exchange rates
With Italian politics weighing on the euros value, selling euros sooner rather than later seems like a sensible option, however an opportunity may present itself later in the week when Europe releases their latest inflation numbers. Core inflation is set to show a significant improvement from 0.7% to 1%. If this is the case this should be some ammunition for President of the European Mario Draghi to use to stop the euro from plummeting like a stone against the US dollar and bring some stability back to euro exchange rates. Could the President state the QE program could be coming to an end due to the improvement in inflation?
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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