The Italian Government, who for the first time in the history of the EU had a budget shot down this month, are set to return to the table with a much more reasonable budget, limiting the amount they intend to add to their existing deficit. Deputy Prime Minister Luigi Di Maio, who previously said his Government wouldn’t back down, conceded that they could decrease the deficit from a planned 2.4% to 2.2% of GDP, with some speculating it may even be 2%.
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The main issue with that loss is it’s not clear how the Italian Government would be able to keep their key election pledges as they’re going to be short by billions of euros. Before Christmas there is expected to be another comprehensive offering from Italy to the EU, as to whether or not this will be accepted is still to be seen.
The euro held strong against sterling, which rose against the US dollar. This suggests that the markets received the Italian developments positively. If the Italians weren’t adding significant drama to the Eurozone at the moment it’s hard to see how the GBP/EUR rate might not be nearer 1.10.
The end of the week brings a flurry of data with Business Confidence and Consumer Confidence on Thursday. Both have been a cause for concern over the past few months, which is a stark contrast from the start of the year when the Eurozone economy was booming.
On Friday the latest Unemployment data is expected to show a fall from 8.1% to 8.0%, which might be one of the only real positives from a data perspective in the Bloc at the moment. Finally the Consumer Price Index will be released on Friday morning with Inflation expected to fall from 2.2% to 2.1%. In my opinion, after poor GDP figures earlier this month from the likes of Germany this reading could fall below the expected level.
Mario Draghi has said that the ECB are still expecting to halt quantitative easing in December, however following the last few months of data many are considering the possibiltiy that now might not be the right time. At the moment markets are thought to be pricing in an interest rate hike in the Eurozone this summer. However, the keen eye points out that since the QE buying program has gradually decreased, so has economic performance, prompting markets to question if the Eurozone is being propped up. If you’re looking to complete a transfer there are so many factors contributing to volatility it’s important to be in touch with your trader.
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