Tensions between the EU and Italy rose further yesterday after the European Commission rejected Italy’s budget plans once more and suggested that the EU should fine Italy for failing to comply with Eurozone rules. With Italy’s debt at 132% of output the EU commission are concerned that unless the Italian Government is committed to reducing their deficit, they will be heading towards a period of uncertainty that could damage the bloc as a whole.

Currency Pair% Change in 1 monthDifference on £200,000

However, Deputy Prime Minister Matteo Salvini has responded to the rejection of their budget and potential sanctions by saying that he will not renegotiate on his key policies and would see any fines as disrespectful to Italian people.

With Brexit approaching the EU will be keen to maintain unity amongst the remaining member states; this standoff with Italy will not help as they will become the third largest member of the EU once the UK leaves. If these tensions persist, especially whilst the impact of Brexit on the Eurozone is yet to be realised, I think we could see the euro come under increased pressure in the short to medium term.

Brexit talks enter last drive for a deal

ECB still on course to wind down QE this year?

Later on today the ECB will be releasing the minutes from their most recent monetary policy meeting, which could give some insight into whether or not they still plan to unwind their quantitative easing programme by the end of this year, and if they are still aiming to raise rates by summer next year. Any hints to what can be expected from future monetary policy could have an impact on the value of the euro.

The rest of this week remains fairly quiet in terms of data releases, so it will be most likely Brexit updates that have the greatest impact on euro rates. Sunday looks to be a key date with a Summit of EU leaders that will aim to sign off a Brexit deal ahead of the March deadline. This could pave the way for a volatile few weeks ahead.

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