Will the Italian Referendum trigger another Eurozone crisis?

Its been a bumpy ride for the Euro this week after the Italian Referendum outcome has caused big swings within Euro exchange rates. In a year of political shocks is was about time the pollsters got a vote right, and this time it was currency movements that caught the markets off guard as many expected to see Euro weakness. In the immediate aftermath of the Referendum outcome and Matteo Renzis subsequent resignation the Euro dropped to its lowest level against the Pound since July, trading just above the psychological level of 1.20.

Since then Renzi has agreed to stay on for at least a week to oversee the 2017 budget.

Despite this initial sell-off the Euro later recovered and was trading up against all major currency pairs on Monday, something few had predicted. After a year of political upsets, I think its understandable that currency markets have learnt to weather storms such as this one over the past weekend, and considering that markets were anticipating a loss for Renzis Democratic Party I think its understandable that the Euro hasnt been sold off overly dramatically, even though in the long run this could signal the beginning of a difficult time for the Eurozone.

Where to now for Euro exchange rates?

Whilst our daily market reports are often Sterling focused, I think its worth noting that the Euro is trading at its lowest level vs the US Dollar since November 2015, and prior to that date Euro to US Dollar exchange rates hadn’t traded this low in the last 12 years. With a number of Eurosceptic parties gaining traction within Europe and the UK already planning its exit, it could be that the EUs future could come under threat which I think is being reflected in the Euros value.

On a more positive note for the Eurozone, Year on Year GDP figures showed a gain of 1.7% earlier this week which was better than expected. This boosted the Euros value pushing the Pound to Euro exchange rate further from 1.20, but I wouldn’t rule out a move above that key level if Eurozone economic data suddenly begins to disappoint.

Thursday is likely to be the Euros busiest day this week as at 12.45pm the European Central Banks Interest Rate Decision will be announced and then at 1.30pm Mario Draghi (ECB President) will offer a statement. Although no interest rate change is expected any references towards extending the Eurozone’s monetary easing program could push the GBP/EUR closer to 1.20.

Uncertainty surrounding the Euro will continue as we enter 2017. The European elections and potential extension of the ECBs QE programme could rattle Euro exchange rates. If you are looking to sell Euros to buy Pounds, now could be a good time to cash in on the recent gains since Brexit. Call us on 01494 725 353 or email me here to arrange a free quote.


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