The value of the euro has continued to fall against the USD and the interbank rate sits close to a 2 year low. Against the pound however the euro now sits close to a three month high showing a real mixed impact on politics on different currency pairs.
|Currency Pair||% Change (Month)||Difference on £200,000|
Italian debt remains on the horizon and a driving factor for the value of the euro. Italian Parliament have now submitted a debt to Gross Domestic Product (GDP) ratio of 2.5%, above the 2% target within the EU guidelines. The relatively newly formed political coalition in Italy are under a lot of pressure having to deal with several challenges facing their economy including slow growth, a rising deficit and one of the largest public debts in the eurozone. The returns for investing in Italian debts have now climbed once more to try and encourage investments into Italy. The difference between Italy’s 10-year bond yields and German bonds has widened to 290 basis points this week, the highest since March.
As the government is formed of a coalition between the Five Star and League parties the other challenge it to try and stick to election pledges while not upsetting Italy’s eurozone allies and the financial markets. This has the potential to cause the Italian Government to collapse according to Bloomberg News, which reported last week that Sergio Mattarella, Italy’s President, is considering holding an election as soon as the autumn if a financial plan cannot be agreed.
Germany has also had its own shocks with a surprising drop in economic activity which has stemmed from their important manufacturing sector. This area of their economy is under increasing strain from both international demand for their cars falling and and those trade tensions globally which is weighing down this sector.
German factories have reported a general slow-down in orders. Manufacturing in Germany accounts for about a fifth of their economy, about twice as much as that in the UK economy. German growth forecasts fell as a result down to 0.5% for 2019, this reduced the eurozone economic growth forecast to 1.4%, similar to the UK’s.
Consumer confidence across Europe has also been falling generally, and this is expected to be a talking point for Mario Draghi who is holding a key speech tomorrow. Purchase Manager's Index (PMI) data is also due to be released on Thursday of this week, but most expect political events taking place globally to have a larger impact on the cost of buying the euro. 513 million people vote in the European elections on Thursday which could easily drive markets as we end the week, however most expect this to have a larger impact on the pound rather than the euro.
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